Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please be sure to show all calculations specifically NPV and IRR. Maryville Cleaners has the opportunity to invest in one of two dry cleaning machines.

Please be sure to show all calculations specifically NPV and IRR.

image text in transcribed
Maryville Cleaners has the opportunity to invest in one of two dry cleaning machines. Machine A has a 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 B has a four- year expected life and a cost of $60,000. It will cost an additional $15,000 to have machine delivered and installed, and the expected residual value at the end of four years is $5,000. The company has a required rate of return of 10 percent. Additional cash flows related to the machines are as follows: Machine A Item Year 1 Year 2 Year 3 Year 4 Labor savings $10,000 $15,000 $20,000 $25,000 Power savings 1,500 1,500 1,500 1,500 Chemical savings 3,000 3,000 3,000 3,000 Additional maintenance costs (1,200) (1,200) (1,200) (1,200) Additional miscellaneous costs (2,500) (2.500) (2,500) (2.500) Machine B Item Year 1 Year 2 Year 3 Year 4 Labor savings $20.000 $25.000 $30,000 $35.000 Power savings 2,000 2,000 2,000 2,000 Chemical savings 3,500 3,500 3,500 3,500 Additional maintenance costs (1,500) (1,500) (1,500) (1,500) Additional miscellaneous costs (3,000) (3,090) (3,000) (3.000) Required 1. Compute the payback period for each of the two machines. 2. Compute the net present value for each of the two machines. 3. Determine the internal rate of return for each of the two machines. 4. Which machine purchase do you recommend that the company pursue based on the results of your calculations

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial And Managerial Accounting

Authors: Charles T Horngren, Jr Walter T Harrison

2nd Edition

0135080193, 9780135080191

More Books

Students also viewed these Accounting questions

Question

1. Why do we trust one type of information more than another?

Answered: 1 week ago