MKM International is seeking to purchase a new CNC machine in order to reduce costs. Two alternative

Question:

MKM International is seeking to purchase a new CNC machine in order to reduce costs. Two alternative machines are in consideration. Machine 1 costs $500,000, but yields a 15 percent savings over the current machine used. Machine 2 costs $900,000, but yields a 25 percent savings over the current machine used, In order to meet demand, the following forecasted cost information for the current machine is also provided.
Year Project Cost
1 ............1000000
2 ............1350000
3 ............1400000
4 ............1450000
5 ............2550000
a. Based on the NPV of the cash flows for these S years, which machine should MKM International Purchase? Assume a of 12 percent.
b, If MKM International lowered its required to B percent, what machine would it purchase?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...