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  3. b) madrid inc. is a firm located in spain. the fir

b) Madrid Inc. is a firm located in Spain. The firm considers purchasing a new...

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Accounting

b) Madrid Inc. is a firm located in Spain. The firm considers purchasing a new machine for EUR 50,000, excluding EUR 2,000 of installation costs. The old machine was bought five years ago and had an expected economic life of 10 years without residual value. This old machine now has a book value of EUR 5,000. The firm expects to sell it for that amount. The new machine would decrease total operating costs by EUR 12,000 each year of its economic life. The straight-line depreciation method would be used for the new machine for a six-year period with no residual value. Assuming the firm has a required rate of return of 14%, evaluate (with calculations!) whether the new machine should be purchased!

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