Compare two units, A and B. A has a new cost of $42 000, a life expectancy of 14 years, a salvage value of $4 000, and an annual operating cost of $3 000. B has a new cost of $21 000, a life expectancy of 7 years, a salvage value of $2 000, and an operating cost of $5 000. Assume an annual interest rate of 7 percent. Which of the two units would you recommend? What initial cost of machine A would make the two machines identical in overall cost?
What will be an ideal response?
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