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Below you are given two machines that if adopted would lower your annual production cost

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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).