The maintenance cost is incurred at the end of the year
Homework Answers
NPV of machine A = -39653.30
NPV of Machine B = -42426.02
Machine A is cheaper by $2772.72
| Machine A | ||||
| Year | Capital cost | O&M cost | Salvage | Net CF |
| 0 | -18000 | -18000 | ||
| 1 | -1200 | -1200 | ||
| 2 | -1200 | -1200 | ||
| 3 | -1200 | -1200 | ||
| 4 | -1200 | -1200 | ||
| 5 | -1200 | -1200 | ||
| 6 | -23000 | -1200 | 1500 | -22700 |
| 7 | -1200 | -1200 | ||
| 8 | -1200 | -1200 | ||
| 9 | -1200 | -1200 | ||
| 10 | -1200 | -1200 | ||
| 11 | -1200 | -1200 | ||
| 12 | -1200 | 1500 | 300 | |
| Effective rate | 0.08299951 | |||
| NPV | ($39,653.30) | |||
| Machine B | ||||
| Year | Capital cost | O&M cost | Salvage | Net CF |
| 0 | -38000 | -38000 | ||
| 1 | -700 | -700 | ||
| 2 | -700 | -700 | ||
| 3 | -700 | -700 | ||
| 4 | -700 | -700 | ||
| 5 | -700 | -700 | ||
| 6 | -700 | -700 | ||
| 7 | -700 | -700 | ||
| 8 | -700 | -700 | ||
| 9 | -700 | -700 | ||
| 10 | -700 | -700 | ||
| 11 | -700 | -700 | ||
| 12 | -700 | 2000 | 1300 | |
| NPV | ($42,426.02) | |||
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The maintenance cost is incurred at the end of the year
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