Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
Below you are given two machines that if adopted would lower your annual production cost
Below you are given two machines that if adopted would lower your annual production cost. Your "required rate of return (discount rate)" is 11.5%.
Machine A
After-Tax Initial Cost = $3200
3-year Life
Annual after-tax savings = $1500
Expected Salvage Value = $0
Straight-line Depreciation
Machine B
After-Tax Initial Cost = $2000
2-year Life
Annual after-tax savings = $1400
Expected Salvage Value = $0
Straight-line Depreciation
(a) Calculate the NPV for each machine.
(b) Whichever machine you adopt will be used forever (you will purchase and use it over and over again). Which machine would you recommend and why? (hint: look at the title of this question).
Expert Solution
a) NPV of machine A = $433.93
NPV of machine B = $381.71
b) Machine A should be adopted because the annual production cost for machine A ($179.12) is lower than the machine B ($224.37).
Since, the NPV for machine A is higher than the machine B. So, the machine A should be recommended.
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
