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pe company must replace one of its current machines with either Machine A or Machine B. The useful life of both machines is s
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Answer #1
Extra cost of Machine B = 51,000-48,000 = $3000
Year Incremental Cash flows Cumulative Cash flows
0 -3000 -3000
1 -1000 -4000
2 4000 0
3 5000 5000
4 5000 10000
5 3000 13000
6 3000 16000
7 2000 18000
Hence, payback period = 2 years
i.e. A
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