A manufacturing company is planning to replace two old machines in a production line with either two new ones or a single automatic machines which integrates their functions. Relevant cost data are given:

The existing machine have no resale value and the economic life of all new machines is 8 years. Dsicount rate is taken to be 14% by the company.

i) Find NPV of savings obtainable by replacing the existing machines with: 

A) Two new machines

B) A single automatic machine

 ii) Which options that you choose, why?

Existing machine replacement Proposed Capital Cost Operating machine per year RM Operating expenses per year RM RM Machine 1 30,000 80,000 9,000 Machine 2 20,000 55,000 6,000 Automatic 150,000 10,000 machine