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Business, 02.07.2021 18:40 annrawcliffe

Firm X is able to sell one of its two milling machines now. Both machines perform the same function but differ in age. Machine A could be sold today for $50,000. Its operating costs are 20000 a year, but at the end of five years, the machine will require a $20,000 overhaul. Thereafter, operating costs will $30,000 until the machine is finally sold in year 10 for $7,000. Machine B could be sold today for $25,000. If it is kept, it will need an immediate $20,000 overhaul. Thereafter, operating costs will be $30,000 a year until the machine is finally sold in year 5 for $4,000. Cash flows have been forecasted in real terms. The real cost of capital is 12%. Which machine should firm X sell now

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