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Inguinal's Tough Choice v2 Net Present Value Inguinal Corp. needs to purchase a specialty machine on January 1, 2022 to add to their production line.
Inguinal's Tough Choice v2 Net Present Value Inguinal Corp. needs to purchase a specialty machine on January 1, 2022 to add to their production line. They have narrowed the choice down to three alternatives. Each alternative will produce the same cash inflows from production. The alternatives are: Machine A: This machine costs $54,100. The machine would require maintenance averaging $1,100 at the end of each year of the machine's estimated life of 10 years. At the end of the machine's useful life, it is estimated that it could be sold for $9,000. Machine B: This machine costs $53,450. The machine requires a $2,000 tune-up at the end of Year 5, Year 7, and Year 8. At the end of the machine's useful life, it is estimated that it could be sold for $2,000. Machine C: This machine costs $58,400. The machine will produce scrap that management can sell, netting $450 on 7/1 and 12/31 of each year until the machine is retired at the end of Year 10. There is no anticipated salvage value. INSTRUCTIONS: Assume a 9% interest rate and a 10 year useful life. 1. Calculate the net present value of each machine. Because the projected cash inflows from machine production is assumed to be the same for all the alternatives, it is not a factor in this net present value computation. Also, note that cash payments should be indicated with minus signs or brackets; they reduce our cash position 2. Based on the net present value analysis, which machine should Inguinal purchase
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