Question
[21pts] Graves Lighting in considering the replacement of a metal stamping machine at their facility in Dayton, Ohio. Machine A will cost $37,000, have annual
[21pts] Graves Lighting in considering the replacement of a metal stamping machine at their facility in Dayton, Ohio. Machine A will cost $37,000, have annual maintenance costs of $2,800 (payable at the end of the year), need a major refit after 8 years costing another $7,000, and have a resale value of $11,000 at the end of its 15th year life. Machine A offers many productivity savings over the machine it replaces and is expected to generate savings of $9,000 per year (assume this accrues at the end of the year). The alternative is to buy the less expensive Machine B at a cost of $27,000. The annual maintenance will only be $2,000 per year. It will also need a refit after 8 years at $5,000 and have a resale value of $8,000 at the end of its 15th year life. It is not as efficient as Machine A and will generate savings of just $7,000 per year. If Graves uses an interest rate of 15% compounded annually to evaluate projects, which is the better choice based upon Net Present Value (NPV)?
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