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Two machines, each with 25 years of life are being considered for purchase by a...

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Finance

Two machines, each with 25 years of life are being considered for purchase by a refinery. The first one costs $500 000, will cost the refinery $12 000 to dismantle, will provide an annual benefit of $150 000 but has a maintenance cost that starts at $20 000 for the first year and increases by $2000 for each addition year. The other one cost $300 000, has a salvage value of $25 000, will provide an annual benefit of $100 000 but has a maintenance cost of $15 000 per year. Using a MARR of 9%, calculate the NPV and IRR for each machine. Explain briefly which column should be purchased.

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