MKM International is seeking to purchase a new CNC machine
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 discount rate of 12 percent.
b, If MKM International lowered its required discount rate to B percent, what machine would it purchase?

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