Question
as a financial manager, you want to maximize the value of your company. To increase its production and sale of a product, the company is
as a financial manager, you want to maximize the value of your company. To increase its production and sale of a product, the company is planning to install a new machine. You have been asked to evaluate two machines, A and B, and recommend the selection of one of them. Machine A has expected economic life of 5 years and it costs $100,000 today. Machine B has an expected economic life of 3 years, and it costs $72,000 today. It would cost $13,000 per year to operate Machine A, and $15,000 per year to operate Machine B. You assume that the cost of capital is 12% per year. Which machine would you recommend, and why? Give clear reasons for your selection.
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