Discuss the below:
Q: Compare the two scenarios for acquiring a machine for a project for 25 years expected operations, at a company with an internal rate of return of i = 10%. Which scenario is better? Please round to the nearest $.
Scenario 1. Buy an initial small machine at $12,000, it cost $2,400 to run for the first 10 years, buy a second larger machine at $28,000 and run it for 15 years at a cost of $4,000/year. There is no salvage value at the end of service for either machine.
Scenario 2. Buy a large machine for $30,000 and run it for 25 years at a cost of $1,000/year. At the end of the 25 years, the machine is assumed to have a salvage value of $12,000.