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The ZZZ Company is considering investing in a new machine for one of its factories. The company has two alternatives to choose from: The life
The ZZZ Company is considering investing in a new machine for one of its factories. The company has two alternatives to choose from: The life span of each machine is 5 years. ZZZ sells each unit for a price of $6. The company has a cost of capital of 12% and its tax rate is 35%. a. If the company manufactures 1 million units per year, which machine should it buy? (Machine A) b. Plot a graph showing the profitability of investment in each machine type depending on the annual production. (Hint: you might want to use the Data Table functionality to examine how sensitive the NPV is to the annual production.) Machine A Machine B $10,000,000 Cost $4,000,000 $300,000 $210,000 Annual fixed cost per machine Variable cost per unit $1.20 $0.80 Annual production 400,000 550,000
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