managerial accounting 12

The Green machine will cost $200,000 and will earn cash flows of $60,000 per year for 5 years. At the end of the 5 years, it can be sold for its salvage value of $50,000.

The Red machine would cost $300,000, earn $90,000 for 5 years and can be sold after 5 years for its salvage value of $40,000.

Which machine is the best financially justified investment? Assume a discount rate of 10%.

 

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