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The owner of the Company where you are employed intends to purchase a new piece of machinery to increase productivity over the next 10 years
The owner of the Company where you are employed intends to purchase a new piece of machinery to increase productivity over the next 10 years in response to a forecasted increase in market demand. She is considering two candidates, Machine A and Machine B, for which she gives you the following data: Machine A Price Maintenance Generated Profits Salvage value Useful Life $ 7,000 $ 300/year increasing by $ 50/year $ 3,500/year $1,000 5 years Ilse Machine B Price Maintenance Generated Profits Salvage value Useful Life $ 20,000 $ 0 for the first 5 years; $ 300/year thereafter, increasing by $ 50/year $4,500/year decreasing by $ 100/year $ 4,000 10 years Additionally, she told you that she does not intend to spend on maintenance during the last year of use of the selected machine. She asks you within which intervals of the Company's cost of capital she should select which machine, or just forget about the investment (you are a young, newly hired engineer and you feel your career is on the line, therefore you want to be precise in your analysis). The owner of the Company where you are employed intends to purchase a new piece of machinery to increase productivity over the next 10 years in response to a forecasted increase in market demand. She is considering two candidates, Machine A and Machine B, for which she gives you the following data: Machine A Price Maintenance Generated Profits Salvage value Useful Life $ 7,000 $ 300/year increasing by $ 50/year $ 3,500/year $1,000 5 years Ilse Machine B Price Maintenance Generated Profits Salvage value Useful Life $ 20,000 $ 0 for the first 5 years; $ 300/year thereafter, increasing by $ 50/year $4,500/year decreasing by $ 100/year $ 4,000 10 years Additionally, she told you that she does not intend to spend on maintenance during the last year of use of the selected machine. She asks you within which intervals of the Company's cost of capital she should select which machine, or just forget about the investment (you are a young, newly hired engineer and you feel your career is on the line, therefore you want to be precise in your analysis)
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