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You are considering the purchase of one of two machines required in your production process. Machine A has a life of two years. Machine A costs $50 initially and then $70 per year in maintenance. Machine B has an initial cost of $90. It requires $40 in maintenance for each year of its three-year life. Either machine must be replaced at the end of its life. The discount rate is 10% and the tax rate is zero. Based on equivalent annual costs, which is the better machine for the firm? Why?

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Financial Management, Finance

Category:- Financial Management
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