Arlo'sMachineWorks is considering buying a machine for $2,500. It expects to earn $750 in profits from its use for each of the next fouryears, after which the machine can be sold for scrap in year five for $500. If the interest rate is 7%, should Arlo'sMachineWorks make the investment ornot? Assume that the initial year is t = 0.

A.

Since the present value of earnings from the use of the machine and the scrap value doesnotexceed the value of the cost of the machine invested for 4years, Arlo'sMachineWorks should make this investment.

B.

Since the present value of earnings from the use of the machine and the scrap value doesnotexceed the value of the cost of the machine invested for 4years, Arlo'sMachineWorks shouldnot make this investment.

C.

Since the present value of earnings from the use of the machine and the scrap value exceeds the value of the cost of the machine invested for 4years, Arlo'sMachineWorks should make this investment.

D.

Since the present value of earnings from the use of the machine and the scrap value exceeds the value of the cost of the machine invested for 4years, Arlo'sMachineWorks shouldnot make this investment.

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