Install the machine and ignoring improvement

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A firm could install an improved piece of machinery at cost of $20,000 (has to be paid immediately. In 2022). This machine will save $1,000 every year starting from 2023.

Would the firm install the machine if the interest rate is 4%? Explain.

Would the firm install the machine if the interest rate is 8%? Explain.

At what interest rate is the firm indifferent between install the machine and ignoring this improvement? Explain.

Reference no: EM133217557

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