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Ashley Foods, Inc. has determined that any one of five machines can be used in one phase of its chili-canning operation. The costs of the

Ashley Foods, Inc. has determined that any one of five machines can be used in one phase of its chili-canning operation. The costs of the machines are estimated, and all machines are expected to have a 4-year useful life. If the minimum rate of return is 6% per year, which machine should be selected on the basis of a rate of return analysis? The do nothing alternative is not an option.

Machine

First Cost, $

Annual operating cost, $/year

1

-31,000

-16,000

2

-29,000

-19,300

3

-34,500

-17,000

4

-49,000

-12,200

5

-41,000

-15,500

Notes:

  • The Do-nothing alternative is not viable, as the company must invest. Your analysis must be an IRR analysis or no credit will be given.

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