Which investment alternative (Machine A or Machine B) should be selected assuming 5% interest rate?

WRZpxvr
timer Asked: Sep 11th, 2018

Question Description

A company wants to get a loan to finance the purchase of earth-moving equipment. You have provided by your bank with a loan plan and you consider purchasing Machine A or Machine B. Consider the following to answer this problem: Machine A costs $525,000 to buy and can produce 25 yd3 per hour. · Machine B costs $625,000 to buy and can produce 35 yd3 per hour. Assume equal operating and maintenance costs and that the salvage value of both machines (A & B) is zero at the end of their use (15 years). The machine will be operated for 2,000 hours per year and the company has contracts for the next 15 years to move earth for $1 per yd3.

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