Maryvite Cleaners has she opportunity to invest in one of two dry cleaning machines. Machine A has four-year expected life and a cost of $40,000. It will cost an additional $10.000 to have the machine delivered and installed, and the expected residual value at the end of four years is $2.000. Machine has a four-year expected life and cost of $60,000. It will cost an additional $15.000 to have the machine delivered and installed, and the expected residual value at the end of four years is 55,000. The company has a required rate of return of 10 percent. Additional cash flows related to the machines are as follows Machine A hem Labor savings Power savings Chemical saving Additional maintenance Additional miscellaneouLCOME Year 1 $10,000 1.500 3.000 2.2001 12.500) Year $15.000 1,500 3.000 11.2001 12.500 520.000 1,500 3.000 11.2001 (2,500) Year 525.000 1.500 3.000 (1.2001 (2500) Machine item Year 1 Year 2 Labor savings $20.000 $25,000 Power saving 3.000 2.000 Chemical savings 3500 3500 Additional maintenance costs (1.500 11.500) Additional miscellaneous costs 12.000 (5000) Requirement 1: Compute the payback period for each of the two machines. Machine A Years 330,000 2,000 3.500 11 500 3.000 Year 4 355.000 3.000 3.500 (1,500 (COD) Particulars Cost Installation & Delivery Total Cash Outflow Amount 40,000 $10,000 $50,000 Year 1 Machine A Net Cash Inflow Particulars Labor Savings Power Savings Chemical Savings Additional Maintenance Cost Additional Misc Cost Salvage Value (Inflow) Net Cash Inflow: Year 2 $10,000 $1,500 $3,000 ($1,200) ($2.500) Year 3 $15,000 $1,500 $3,000 151,200) 1$2,500) Year 4 $20,000 $1,500 $3,000 ($1,200) ($2.500) $25.000 $1,500 $3.000 151,200) {$2,500) 2000 $27,800 $10,800 $15,800 $20,800 Calculation Payback for Machine A Cash Intlow Year Year 0 Year 1 Year 2 Year 3 Year 4 Recovery Left Opening - Next Years Inflow 50,000 $10,800 39,200 $15,800 23.400 $20,800 2,600 $27.800 days 46 1 month 15 days Machine A payback period 2 years 1 month 15 days Machine B Particulars Cost Installation & Delivery Total Cash Outflow Amount 60,000 $15,000 $75,000 Calculation Payback for Machine B Cash Inflow Year Year 0 Year 1 Year 2 Year 3 Year 4 33 1 month 2 days Machine B payback period Recovery Left Opening - Next Years Inflow 50,000 $21,300 28,700 $26,300 2,400 $31,300 $41,300 days 2 years 1 month 2 days Requirement 2: Compute the net present value for each of the two machines. Net Present Value Machine A Year Net Initital Investment Cash Inflows Cash (Outflows) PV factor Inflows 10% (550,000) $10,800 $15,800 $20,800 $2,000 1 2 3 PV of cash flows 1.0000 (550,000) 0.9091 $9,818 0.8264 $13,058 0.7513 $15,627 0.6380 $17,622 0.6830 $1,366 $7,491 4 Salvage value 4th year Net present value Machine B Year Net initial investment Cash Inflows 0 1 2 3 4 Cash (Outflows) PV factor Inflows 10% (575,000) $21,000 $26,000 $31.000 $36,000 $5,000 PV of cash flows 1.0000 {$75,000) 0.9091 $19,091 0.8264 $21,488 0.7513 $23,291 0.6380 $24,588 0.6830 $3,415 $16,873 4th year Salvage value Net present value Requirement 3: Determine the internal rate of return for each of the two machines. Question please answer step by step C
