Investments:

The company is evaluating whether to invest and is choosing between two options. The

company decides to make the investment that is better for the company. The investment will

take place and will be recorded in June $2025,$ although the impact of the investment on income

and operating costs will not be apparent until $2026.$ Find the NPV and PVI for both investments.

A $14\%$ interest would be gained.

Option $1|$

Buy a new machine that costs $1,400,000$ ISK. The life of the machine is $6$ years, and the scrap

value is $300,000$ ISK. Installation costs for the machine must be paid, $50,000$ ISK. Operating

costs for machines will decrease by $350,000$ ISK. per year and the inventory that the company

needs to have decreases by $150,000$ ISK. in year $1$ and $100,000$ ISK. in year $2.$ The machine

replaces another which at the time cost $1,000,000$ ISK. but now has a book value of $200,000$ ISK.

and a return value of $150,000$ ISK.

Option $2$

Buy a new machine that costs $1,000,000$ ISK. The useful life of the machine is $6$ years, and the

salvage value is $480,000$ ISK. Additional income from the machine is $290,000$ ISK. per year, but

operating costs increase by $25,000$ ISK. in a year. The machine needs maintenance in year $4,$

which costs $100,000$ ISK. and employees must be trained every year, which costs $10,000$ ISK. in

a year.

The chosen investment is written off by $30,000$ ISK. per month, from July. Please show the

depreciation in the schedule.

Use the T account to show the entries that need to be made in the balance sheet and income

statement when the investment is made and depreciated. Assume that the investment is paid in

cash.