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 A
|
Machine B
|
|
Original Cost
|
$15,000
|
$24,000
|
|
Labor per year
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$2,400
|
$4,400
|
|
Maintenance per year
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$4,000
|
$800
|
|
Salvage value
|
$1,600
|
$7,000
|
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.
1. The NPV for Machine A=? $ (round your response to the nearest whole number and include a minus sign if necessary).
2. The NPV for Machine B=? $ (round your responses to two decimal places and include a minus sign if necessary).
3. Using the net present value as the basis of comparing the machines, Tim should recommend Machine A or B?