Question
Tim Smunt has been asked to evaluate two machines. After some investigation, he determines that they have the costs shown in the following table: Machine
Tim Smunt has been asked to evaluate two machines. After some investigation, he determines that they have the costs shown in the following table:
Machine A | Machine B | |||
Original Cost | $10,000 | $20,000 | ||
Labor per year | $2,400 | $4,400 | ||
Maintenance per year | $4,600 | $1,200 | ||
Salvage value | $1,600 | $7,200 |
He is told to assume that:
1. The life of each machine is 3 years.
2. The company thinks it knows how to make 8% on investments no more risky than this one.
3. Labor and maintenance are paid at the end of the year.
The NPV for Machine A equals=
(round your response to the nearest whole number and include a minus sign if necessary).
The NPV for Machine B equals=
(round your response to the nearest whole number and include a minus sign if necessary).
Using the net present value as the basis of comparing the machines, Tim should recommend???
(Machine A or Machine B)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started