You are investigating options to purchase either a front-end-loader or a mechanical shovel for use on your site. The mechanical shovel (backhoe) is priced at $1 620 000 while the front-end loader retails for $1 850 000. The purchase amounts are payable only at the start of the first year of operation. The economic life for both machines is 5 years and the company can borrow funds for this capital expense at an interest rate of 10%. The annual income for each machine is given below. It is estimated that the shovel has a resale value of $185 000 while the loader can be sold for $190 000 at the end of the fifth year. Part of the purchasing agreement for both machines is a maintenance contract which is to be paid for at the end of each year of operation at the rate of $20 000 for the first year and a subsequent increase of $1 000 each year.

Calculate the Net Present Value for each option using the A/G factor and recommend with a motivation the best option. Clearly show all your cash flow diagrams and calculations. Remember to round your answer off to align with the accuracy of your input data and conclude your answer with a clear conclusion/motivation. Never provide answers to impossible accuracies and always conclude clearly. This is an outcome requirement.

INCOME IN DOLLARS

EOY Backhoe Front End Loader

1 50 000 78 000

2 50 000 78 000

3 50 000 75 000

4 65 000 75 000

5 65 000 75 000

EOY	Backhoe	Front End Loader
1	50 000	78 000
2	50 000	78 000
3	50 000	75 000
4	65 000	75 000
5	65 000	75 000