Replacing existing machine that produce their flagship suits

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An apparel company is considering replacing the existing machine that produce their flagship suits. They will pick one of two machines: A and B. Two machines have an identical ability to generate revenues but different lifespans and cost structures. Specifically, Machine A costs $25,000 to install, $6,000 to operate per year for 7 years. At the end of year 7, Machine A will be sold for $9,000 (salvage value at t = 7). Machine B costs $40,000 to install, $5,000 to operate per year for 8 years. At the end of year 8, Machine B will be sold for $10,000 (salvage value at t = 8). The company’s cost of capital is 5%. Determine which machine the company should choose and explain why.

Reference no: EM131883725

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