Georgia Peach Farms is upgrading its fruits washing/separating machine, Georgia has narrowed the decision down to machines: Machine A and Machine B, Pertinent information about each machine include:
Machine A Machine B
Investment...............................................$450,000..........................$650,000
Useful life (years) ...............................................10..................................10
Estimated annual net cash inflows for useful life...$75,000..........................$120,000
Residual Value............................................$25,000...........................$35,000
Depreciation method................................straight-line.......................Straight-line
Required rate of return...................................10%...................................10%
Required:
a. Calculate the net present value of Machine A.
b. Calculate the net present value of Machine B.
c. Using the net present value method, which machine should Georgia select if it can select only one investment?