Jaunty Ltd must comply with a new law which states that all manufaturers must have vending machines. This is mandatory.

Jaunty approaches 2 contractors.

Lotsa Moke Ltd offers to sell a vending machine to Jaunty for $65,000. This machine has a 20 year useful life. Its residual value is $5,000. It will cost $800 electricity per year.

Drongo Ltd offers to sell a vending machine to Jaunty for $99,000. It has a 10 year useful life and its residual value is $18,000. It will also cost $800 per year electricity.

Jaunty applies a 6% rate of return to similar projects. The corporate tax rate is 30%.

Required:

Calculate the NPV of both offers and decide which one Jaunty should accept (Lotsa Moke Ltd or Drongo Ltd). You will have to apply a profitability index to make this decision but rememeber, these are costs (not additional revenues) so you should choose appropriately