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The capitalized cost of an asset is the sum of the original cost of the asset and the present value of maintaining the asset.

  

The capitalized cost of an asset is the sum of the original cost of the asset and the present value of maintaining the asset. Suppose a company is considering the purchase of two different machines. Machine A costs $10,000 and t years from now will cost MA (t) = 1,000 (1 + 0.05t) dollars per year to maintain. Machine B costs $12,500, but its maintenance cost at time t is MB (t) = 1, 150 dollars per year. If the cost of money is 9% per year compounded continuously, what is the capitalized cost of each machine? Which machine should the company purchase?

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