Questions:

1. Calculate the NPV of the savings for both machines.

2. Which machine would you buy?

3. Assume you had operations in Germany where the machine was produced. Assume that you have adequate finds in either place, the interest rate is the same and the exchange rate is $1 = 0.90. Would you pay for the machine with US funds or Euros and why?

Capital Budgeting Homework assignment BUSI 1200 Spring 2020 For this problem you own a small business and you need to invest in some new equipment. You are looking at 2 different widget stamping machines, and both cost $10,000. You can borrow money from your bank at 6% to buy the equipment. The savings for each year are as follows: Year o Year 1 Machine 1 ($10,000) 6,500 3,000 3,000 1,000 Machine 2 ($10,000) $3,500 $3,500 $3,500 $3,500 Year 2 Year 3 Year 4 Notes: a) The savings (or cash flows) are negative in year 0 as that is the year you buy the machine. You have spent money and not received any savings. b) NPV formula is FV = PV(1+i)" c) Remember, you loan rate is quoted annually and you pay monthly