Question

A company is comparing two machines. Machine A will have a first cost of $125,000 and...

A company is comparing two machines. Machine A will have a first cost of $125,000 and an annual cost of $55,000. Machine B will have a first cost of $175,000 and an annual cost of $35,000. If the company uses a 5-year recovery period for these machines and a minimum attractive rate of return (MARR) of 20% per year, which machine should be selected based on an incremental rate of return analysis? You can use a trial-and-error method or a spreadsheet function.

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Answer #1

as the incremental IRR is greater than MARR, Machine B is recommended to invest

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