Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Below you are given two machines that if adopted would lower your annual production cost. Your required rate of return (discount rate) is 11.5%. Machine

Below you are given two machines that if adopted would lower your annual production cost. Your "required rate of return (discount rate)" is 11.5%.

Machine A

After-Tax Initial Cost = $3200

3-year Life

Annual after-tax savings = $1500

Expected Salvage Value = $0

Straight-line Depreciation

Machine B

After-Tax Initial Cost = $2000

2-year Life

Annual after-tax savings = $1400

Expected Salvage Value = $0

Straight-line Depreciation

(a)Calculate the NPV for each machine. Show your work.

NPVA = _________________________________

NPVB = _________________________________

(b) Whichever machine you adopt will be used forever (you will purchase and use it over and over again). Which machine would you recommend and why? (hint: look at the title of this question). Show your work

Step by Step Solution

There are 3 Steps involved in it

Step: 1

NPV Calculations for Machine A and Machine B Machine A 3year life Year Cash Flow Depreciation AfterT... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Foundations of Finance The Logic and Practice of Financial Management

Authors: Arthur J. Keown, John D. Martin, J. William Petty

8th edition

132994879, 978-0132994873

More Books

Students also viewed these Finance questions

Question

Discuss essential concepts of family therapy.

Answered: 1 week ago

Question

Why would a firm repurchase its own stock?

Answered: 1 week ago