A company is considering purchasing a new production machine and have identified two potential options. Option A has a first cost of $1450 but will produce annual revenues of $650 while incurring $245 worth of maintenance. Option B has a purchase price of $1130 with annual revenues of $445 and maintenance costs of $147. One of your colleagues has done an internal rate of return analysis on Option A and determined it had an IRR = 12.28%.

a) Your boss has asked you to determine the IRR for Option B, assuming that both options have the same service life.

b) Assuming the two production machines are independent and the company has a MARR of 11% what should the company do?

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