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

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

Machine A

Machine B

Original Cost

$ 10 comma 000$10,000

$ 20 comma 000$20,000

Labor per year

$ 2 comma 000$2,000

$ 4 comma 000$4,000

Maintenance per year

$ 4 comma 000$4,000

$ 1 comma 000$1,000

Salvage value

$ 2 comma 000$2,000

$ 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.

1. The NPV for machine A = $____

2. The NPV for machine B= $_____

3. Which machine should Tim recommend?

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