Question

The NPV for Machine b =???????

​(round your response to the nearest whole number and include a minus sign if​ necessary).

Tim Smunt has been asked to evaluate two machines. After some​ investigation, he determines that they have the costs shown in the following​ table:

                                                                                                

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	Machine A		Machine B
Original Cost	$ 12 comma 000$12,000		$ 24 comma 000$24,000
Labor per year	$ 2 comma 400$2,400		$ 4 comma 800$4,800
Maintenance per year	$ 4 comma 600$4,600		$ 800$800
Salvage value	$ 1 comma 600$1,600		$ 7 comma 000$7,000

He is told to assume​ that:

1. The life of each machine is

33

years.2. The company thinks it knows how to make

1212​%

on investments no more risky than this one.

3. Labor and maintenance are paid at the end of the year.

The NPV for Machine

Aequals=​$negative 27674−27674

​(round your response to the nearest whole number and include a minus sign if​ necessary).The NPV for Machine

Bequals=​$nothing

​(round your response to the nearest whole number and include a minus sign if​ necessary).

Answer 1

Answer: Machine A

risk level, r	12%
period no, n	0	1	2	3
	Original cost	(-Labor per year-Maintenance per year)	(-Labor per year-Maintenance per year)	(-Labor per year-Maintenance per year+ salvage)
Cash flow, FV	-$12,000	-$7,000	-$7,000	-$5,400
present value, PV= FV/(1+r)^n	-$12,000.0	-$6,250.0	-$5,580.4	-$3,843.6
NPV= sum of all PV	-$27,674

Machine B

risk level, r	12%
period no, n	0	1	2	3
	Original cost	(-Labor per year-Maintenance per year)	(-Labor per year-Maintenance per year)	(-Labor per year-Maintenance per year+ salvage)
Cash flow, FV	-$24,000	-$5,600	-$5,600	$1,400
present value, PV= FV/(1+r)^n	-$24,000.0	-$5,000.0	-$4,464.3	$996.5
NPV= sum of all PV	-$32,468

Machine A is better alternative because it has more value