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 $10,000 $20,000
Labor per year $2,400 $4,000
Maintenance per year $4,000 $1,000
Salvage value $2,000 $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.

What is the NPV for Machine A?

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