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Precision Tool is analyzing two machines to determine which one it should purchase. The company requires...

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Finance

  1. Precision Tool is analyzing two machines to determine which oneit should purchase. The company requires a 15 percent rate ofreturn and uses straight-line depreciation to a zero book valueover the life of its equipment. Machine A has a cost of $892,000,annual operating costs of $28,200, and a 4-year life. Machine Bcosts $1,118,000, has annual operating costs of $19,500, and has a5-year life. Whichever machine is purchased will be replaced at theend of its useful life. Which machine should be purchased? Show allwork.

Answer & Explanation Solved by verified expert
4.3 Ratings (892 Votes)
We use the LCM method for comparisonThis translates to 20yearsAccordingly the cash flows areYearMachine    See Answer
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Transcribed Image Text

Precision Tool is analyzing two machines to determine which oneit should purchase. The company requires a 15 percent rate ofreturn and uses straight-line depreciation to a zero book valueover the life of its equipment. Machine A has a cost of $892,000,annual operating costs of $28,200, and a 4-year life. Machine Bcosts $1,118,000, has annual operating costs of $19,500, and has a5-year life. Whichever machine is purchased will be replaced at theend of its useful life. Which machine should be purchased? Show allwork.

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