Question: The ZZZ Company is considering investing in a new machine for one of its factories. The company has two alternatives to choose from:
The life span of each machine is 5 years. ZZZ sells each unit for a price of $6. The company has a cost of capital of 12% and its tax rate is 35%.
a. If the company manufactures 1,000,000 units per year which machine should it buy?
b. Plot a graph showing the profitability of investment in each machine type depending on the annual production.