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Phoenix Products Inc. requires a new machine. Two companies have submitted bids, and you have been assigned the task of choosing one of the machines.
Phoenix Products Inc. requires a new machine. Two companies have submitted bids, and you have been assigned the task of choosing one of the machines. Cash flow analysis indicates the following Machine A: Year 0 = -$1,000; Years 1-3 = $0 each year; Year 4 = $1,938. Machine B: Year 0 = -$1,000; Years 1-4 = $417 each year. If the required rate of return for Phoenix Products is 5 percent, which of the following is the most valid statement?
- A. The NPV for Machine A is less than the NPV for Machine B, therefore accept Machine B.
- B. Accept neither A nor B.
- C. The IRR for Machine A is less than the IRR for Machine B, therefore accept Machine B.
- D. The IRR for Machine A is greater than the IRR for Machine B, therefore accept Machine A.
- E. The NPV for Machine A is greater than the NPV for Machine B, therefore accept Machine A.
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