Question
The Wyckoff Company specializes in decorative fruit baskets. Currently, the company is analyzing purchase alternatives for a fruit-polishing machine. Data relevant to the decision are
The Wyckoff Company specializes in decorative fruit baskets. Currently, the company is analyzing purchase alternatives for a fruit-polishing machine. Data relevant to the decision are as follows (10 points):
| Machine X | Machine Y |
Cost | $80,000 | $72,000 |
Useful life | 5 years | 5 years |
Residual value | $2,000 | $3,000 |
Estimated annual net cash flows | $32,000 | $28,000 |
|
|
|
Present value multipliers at 12 percent: |
| |
Dollar received at the end of five years | .567 | |
Dollar received at the end of each of the next five years | 3.605 |
Using the net present value method, prepare an analysis to determine which machine the company should purchase. (The company uses a 12 percent minimum desired rate of return.)
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