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The assignment aims to provide guidance to a company who needs to determine the most suitable plan in terms of the acquisition of a manufacturing
The assignment aims to provide guidance to a company who needs to determine the most suitable plan in terms of the acquisition of a manufacturing device. The scenario is the following: A company has purchased a machinery device for $25,000 with an estimated salvvage value of $4.000 at the end of a 6 contract years. The purchase went through a bank loan of $12,000 with an annual interest rate of 15%. The bank is offering 4 payment plans to pay off the loan: Plan 1: Pay through six equal payment series every single year. Plan 2: Pay an equally distributed amount of the principal plus the interest earned at the end of every year. Plan 3: Pay only the interests earned at the end of each year and pay the principal plus the interest earned on year 6. Plan 4: Pay a sum lump that includes the original capital plus the total amount of earned interest of the 6 contract year. If the MARR of the company is 18%, which of the different plans should the company go after to optimize profits if taxes are not paid? Why should the company choose such plan? At the same time, a joint venture of the previous company has been considering the possibility of expanding its current production rate. To do so, an investment of $18,000 will be needed to acquire a sweeping machine. It is expected to last 4 years with the opportunity of a $2,000 salvage value at the end of such period. Profits are expected to be constant and for $5,000. The joint venture's MARR is of 4.4% and will be paying a tax rate of 50%. Determine which depreciation method should work best for the company so investment is profitable. You need to be able to construct an argument for the company's CEO in which you clearly state your proposal regarding both scenarios
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