Seagull plc has identified that it could make operating cost savings in production by buying an automatic press. There are two suitable such presses on the market, the Zenith and the Super. The relevant data relating to each of these are as follows:

The annual savings are, in effect, opportunity cash inflows in that they represent savings from the cash outflows that would occur if the investment were not undertaken.
Which, if either, of these machines should be bought if the financing cost is a constant 12 per cent p.a.?

Transcribed Image Text:

Cost (payable immediately) Annual savings: Year 1 2 3 4 5 Zenith 20,000 4,000 6,000 6,000 7,000 6,000 Super 25,000 8,000 6,000 5,000 6,000 8,000