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Suppose a company is considering the purchase of two different pieces of equipment, A and B, that will perform the same task and generate the
Suppose a company is considering the purchase of two different pieces of equipment, A and B, that will perform the same task and generate the same cash flows. The information is presented in the table below:
| Initial and Operating costs ($) | |||
Equipment | Year 1 | Year 2 | Year 3 | Year 4 |
A (life=1 year) | 15,000 | 6,000 |
|
|
B (life=3years) | 20,000 | 10,000 | 10,000 | 10,000 |
Assume a required rate of return of 10% per annum for both pieces of equipment, which equipment should the company purchased?
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