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Problem Statement: O'Donnell Corp. is need of new machinery for its plant and is considering two different brands as replacements. Information about the two options are as follows:

Correa Co. Grant Inc
Cost (cash price) $100,000 $90,000
Operating costs per year $7,000 $8,000
Estimated useful life 8 8
Estimated residual (salvage) value as percent of cost 20% 10%

Assume all other variables are identical for the two machines. O'Donnell's cost of capital is 8%.

a. Analyze and compare the relative cost of the two machines. Costwise, which is better?

b. What other factors should O'Donnell consider besides the numbers?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M939534

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