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Two machines – Machine M and Machine P – are being considered in a replacement decision. Both machines have about the same purchase price and an estimated ten-year life. The company uses a 12 percent minimum rate of return as its acceptance-rejection standard. The estimated net cash inflows for each machine follow.
Year Machine M Machine P
1 $12,000 $17,500
2 12,000 17,500
3 14,000 17,500
4 19,000 17,500
5 20,000 17,500
6 22,000 17,500
7 23,000 17,500
8 24,000 17,500
9 25,000 17,500
10 20,000 17,500
Residual value 14,000 12,000

1. Compute the present value of future cash flows for each machine, using Table 1 and Table 2.
Total Present Value
Machine M $
Machine P $

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