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pduvin pduvin
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6 years ago
Use the following information to determine which machines to purchase based on net present value.

   Machine 1   Machine 2   Machine 3
Initial investment   $225,000   $235,000   $210,000
Annual cash inflows   $50,000   $50,000   $50,000
Useful lives   5 years   4 years   8 years

Cost of capital is 10 percent.
A) purchase machine 3
B) purchase machine 2
C) purchase machine 1
D) purchase machines 2 and 3
E) purchase machines 1 and 3
Textbook 
Cost Accounting: A Managerial Emphasis, Canadian Edition

Cost Accounting: A Managerial Emphasis, Canadian Edition


Edition: 7th
Authors:
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wrote...
#1
6 years ago
E
Explanation:  A)    Machine 1   Machine 2   Machine 3
Initial investment   <$225,000>   <$235,000>   <$210,000>

NPV cash inflows   $189,540    $158,494    $266,747
NPV of investment   $35,460    <$76,506>   $56,747

Machine 1
$50,000 × 3.79079 = $189,539.50

Machine 2
$50,000 × 3.16987 = $158,493.50

Machine 3
$50,000 × 5.33493 = $266,746.50
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