Question
Supermen Corp. is considering buying a machine and has three options, machine A, B or C, only one of which it will buy. Each machine
Supermen Corp. is considering buying a machine and has three options, machine A, B or C, only one of which it will buy. Each machine costs $135,000 and will have a five-year life with residual value of $5 000 at the end of that time. The net cash flow for the five years period are as follows: Machine A Machine B Machine C $ $ $ Year 1 50,000 38,000 26,000 2 50,000 38,000 26,000 3 38,000 38,000 38,000 4 26,000 38,000 50,000 5 26,000 38,000 50,000 Supermens cost of capital is 12%. Ignore tax effect on depreciation. The firm uses straight-line method of depreciation. Required: i) The NPV of each option ii) State and explain which machine Supermen should choose. Justify your answer
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