Lord Restaurant is considering buying a souffl maker. After some research, 2 souffl maker models stand out. Model One is selling for $9600, and has an operating cost of $1780 in each year. Model Two's price is $12,500, but its annual operating cost is only $1122. Both models have an economic life of 5 years and will be fully depreciated. The discount rate is 12 percent and the tax rate is 25%. Which model should the company purchase, if using NPV method to evaluate them?

1. What is the cash flow value of each model in year 0 and years 1-5? 2.

What is the NPV of each model?

3. Based on NPV method, which model should you recommend Lord Restaurant to purchase? Why do you think so?