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Our firm needs office equipment for the building. One option is to buy more expensive equipment which will cost $5 million today, require maintenance costs of $420,000 per year (starting a year after purchase), and will need to be replaced after 11 years. A second option is to buy equipment that only costs $2.3 million today, but requires $625,000 in maintenance costs each year and will need to be replaced after 7 years. Which option should the firm choose if its discount rate is 7%? What if its rate is 10%?

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Financial Management, Finance

Category:- Financial Management
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