Two new machines are being evaluated for possible purchase. Forecasts relating to the two machines are:
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Machine 1
|
Machine 2
|
|
Purchase price
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$50,000
|
$60,000
|
|
Estimated life (straight-line depreciation)
|
4 years
|
4 years
|
|
Estimated scrap value
|
None
|
None
|
|
Annual cash benefits before income tax:
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|
|
|
Year 1
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$25,000
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$45,000
|
|
Year 2
|
25,000
|
19,000
|
|
Year 3
|
25,000
|
25,000
|
|
Year 4
|
25,000
|
25,000
|
|
Income tax rate
|
40%
|
40%
|
Compute the net present value of each machine. (CGA, adapted)