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Q1.A manufacturer is considering a purchase of a new manufacturing machine, called Machine A. Machine A...

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General Management

Q1.A manufacturer is considering a purchase of a newmanufacturing machine, called Machine A. Machine A is expected tosave $9,000 per year and it costs $21,000 to purchase. The expecteduseful life of the machine is 3 years and there is no expectedresidual value at the end of the 3 years. The minimum acceptablerate of return is 8%.

A)What is the net present value of Machine A? (round to nearestdoller, no dollar sign, use - to indicate a negative result)

B)Based on the NPV analysis, should the manufacturer purchaseMachine A?
a.Yes
b.No

The manufacturer is presented with another alternative, MachineB. Machine B is expected to save $7,000 per year and it costs$16,000 to purchase. The expected useful life of the machine is 3years and there is no expected residual value at the end of the 3years. The minimum acceptable rate of return is 8%.

C)What is the NPV of Machine B? (round to the nearest dollar, nodollar sign, use - to indicate a negative result)

D)Based on the NPV analyses, which machine should themanufacturer purchase?
a.Machine A
b.Machine B

Answer & Explanation Solved by verified expert
3.6 Ratings (641 Votes)
Well start with computing the Net Present Value of the twoMachines using the following steps1 Write the cash flows for years 032 Compute    See Answer
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