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Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would

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Answer #1

PV of Machine A = PV of purchasing price + PV of annual maintenance + PV of salvage value

                        = - $ 66,000 x PVIF (8 %, 0) - $ 2,300 x PVIFA (8 %, 10) + $ 6,930 x PVIF (8 %, 10)

                        = - $ 66,000 – ($ 2,300 x 6.7101) + ($ 6,930 x 0.4632)

                       = - $ 66,000 - $ 15,433.230 + $ 3,209.976

                       = - $ 78,223.254

PV of Machine B = PV of purchasing price + PV of annual maintenance in year 3, 6 and 8

  = - $ 60,000 x PVIF (8 %, 0) - $ 9,200 x PVIF (8 %, 3) -$ 11,500 x PVIF (8 %, 6)- $ 13,800 x PVIF (8 %, 8)

= - $ 60,000 – ($ 9,200 x 0.7938) – ($ 11,500 x 0.6302)- ($ 13,800 x 0.5403)

= - $ 60,000 - $ 7,302.96 - $ 7,247.30 - $ 7,456.14

= - $ 82,006.40

Esquire should purchase machine A.

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