Question
Suppose company Sith AB must choose between two lightsaber production machines. Machine A costs less than machine B but will not last as long. The
Suppose company Sith AB must choose between two lightsaber production machines. Machine A costs less than machine B but will not last as long. The cash outflows from the two machines are shown here:
Machine | Date | ||||
0 () | 1 () | 2 () | 3 () |
| |
A | 500 | 125 | 125 |
| |
B | 600 | 100 | 100 | 100 |
|
Machine A costs 500 and lasts 2 years. There will be maintenance expenses of 125 to be paid at the end of each of the 2 years. Machine B costs 600 and lasts 3 years. There will be maintenance expenses of 100 to be paid at the end of each of the 3 years. The market discount rate is 10%.
Which machine should be chosen and why? Please show all steps of your work.
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