Question
A printing press company is considering buying one of two machines, X or Y; the respective costs and benefits of each are listed below: Annual
- A printing press company is considering buying one of two machines, X or Y; the respective costs and benefits of each are listed below:
Annual Pre-tax
Machine Cost Life of Machine Savings for Company
X $100,000 4 years $56,000
Y $125,000 5 years $60,000
a. Calculate the after-tax cash flow for each machine. Assume, for ease of calculation, straight-line depreciation and no salvage value for either machine. The firm's tax rate is 40 percent and its required rate of return is 16 percent.
b. Calculate the NPV of each machine and the PI. Which would you select and why?
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Personal Financial Planning
Authors: Lawrence J. Gitman, Michael D. Joehnk, Randy Billingsley
13th edition
1111971633, 978-1111971632
