Two machines-Machine M and Machine P-are being considered in a replacement decision. Both machines have about the same purchase price and an estimated ten-year life. The company uses a 12 percent minimum rate of return as its acceptance-rejection standard. Following are the estimated net cash inflows for each machine.

1. Compute the present value of future cash flows for each machine, using Tables 1 and 2 in the appendix on present value tables.
2. Which machine should the company purchase, assuming that both involve the same capitalinvestment?

Transcribed Image Text:

Year Machine M Machine P $12,000 12,000 14,000 19,000 20,000 22,000 23,000 24,000 25,000 20,000 14,000 $17,500 17,500 17,500 17,500 17,500 17,500 17,500 17,500 17,500 17,500 12,000 10 Residual value