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

$12,000

$28,000

Labor per year

$2,200

$4,400

Maintenance per year

$4,600

$1,000

Salvage value

$1,600

$7,500

He is told to assume that:

1. The life of each machine is 33 years.

2. The company thinks it knows how to make 88% 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 ifnecessary).

Using the net present value as the basis of comparing the machines, Tim should recommend Machine B OR Machine A?

.

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