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 | $15,000 | $24,000 | ||
| Labor per year | $2,200 | $4,000 | ||
| Maintenance per year | $4,000 | $1,200 | ||
| Salvage value | $1,600 | $7,500 | ||
He is told to assume that:
1. The life of each machine is 3 years.
2. The company thinks it knows how to make 12% on investments no more risky than this one.
3. Labor and maintenance are paid at the end of the year.
The NPV for Machine A equals=
(round your response to the nearest whole number and include a minus sign if necessary).
The NPV for Machine B equals=
(round your response to the nearest whole number and include a minus sign if necessary).
Using the net present value as the basis of comparing the machines, Tim should recommend???
(Machine A or Machine B)
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