Question
Woody Manufacturing Inc. is considering the purchase of a new machine. They have narrowed their choices down to two machines, Machine #1 and Machine #2,
Woody Manufacturing Inc. is considering the purchase of a new machine. They have narrowed their choices down to two machines, Machine #1 and Machine #2, each having a cost of $35,000. The following information is available regarding the expected cash inflows from each machine:
Year | Machine #1 | Machine #2 |
1 | $14,000 | $42,000 |
2 | 14,000 | 0 |
3 | 14,000 | 0 |
When using net present value analysis, Woody uses the same cost of capital for both machines and both machines have a positive net present value.
Based on the above information, which of the following statements is true?
Answer
a. | Machine #1 will have a higher net present value than Machine #2. | |
b. | Machine #1 will have a lower net present value than Machine #2. | |
c. | Machines #1 and #2 will have the same net present values. | |
d. | Machines #1 and #2 will have the same internal rates of return |
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