A firm can manufacture the same product with either of two machines. Machine C requires an initial investment of $55,000 and would earn a profit of $30,000 per year for three years. It would then be replaced, because repairs would be required too frequently after three years. Its trade-in value would be $10,000. Machine D costs $100,000 and would have a service life of five years. The annual profit would be $5000 higher than Machine C's profit because of its lower repair and maintenance costs. Its recoverable value after five years would be about $20,000. Which machine should be purchased if the firm's cost of capital is 16%? What is the equivalent annual economic advantage of the preferred choice?

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The Answer of A firm can manufacture the same product with either of two machines. Machine C requires an initial investment of $55,000 and would earn a profit of $30,000 per year for three years. It would then be replaced, because repairs would be required too frequently after three years. Its trade-in value would be $10,000. Machine D costs $100,000 and would have a service life of five years. The annual profit would be $5000 higher than Machine C's profit because of its lower repair and maintenance costs. Its recoverable value after five years would be about $20,000. Which machine should be purchased if the firm's cost of capital is 16%? What is the equivalent annual economic advantage of the preferred choice?

A Firm Can Manufacture the Same Product with Either of Two