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Norton industries is considering the purchase of a new machine for the packaging department. They have identified two viable alternatives. The first alternative has an
Norton industries is considering the purchase of a new machine for the packaging department. They have identified two viable alternatives. The first alternative has an initial cost of $ 150,000. The maintenance cost for the first five years is $ 8,000, and then it is reduced by $ 500 per year until the end of the project's life. The income to be received is $ 30,000 the first year, and then increases at the rate of $ 1,500 per year until the end of the project's life. The second alternative has an initial cost of $ 130,000. The first year maintenance cost is $ 5,000, increasing by $ 650 per year after the first year until the end of the project life. The income to receive the first year is $ 35,000 and is reduced at the rate of $ 1,000 per year until the fifth year. It then remains constant at $ 28,000 until the end of the project's life. The life of both projects is 10 years and the minimum attractive rate of return is 10%. Use the present value analysis method to recommend the alternative to select.
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