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 $2,400 $4,400 Maintenance per year $4,300 $1,000 Salvage value $1,600 $7,500 He is told to assume that: 1. The life of each machine is 3 years. 2. The company thinks it knows how to make 12% on investments no more risky than this one. 3. Labor and maintenance are paid at the end of the year. The NPV for Machine A=$nothing (round your response to the nearest whole number and include a minus sign if necessary). The NPV for Machine B=$00 (round your response to the nearest whole number and include a minus sign if necessary). Using the net present value as the basis of comparing the machines, Tim should recommend Machine B
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 $2,400 $4,400 Maintenance per year $4,300 $1,000 Salvage value $1,600 $7,500 He is told to assume that: 1. The life of each machine is 3 years. 2. The company thinks it knows how to make 12% on investments no more risky than this one. 3. Labor and maintenance are paid at the end of the year. The NPV for Machine A=$nothing (round your response to the nearest whole number and include a minus sign if necessary). The NPV for Machine B=$00 (round your response to the nearest whole number and include a minus sign if necessary). Using the net present value as the basis of comparing the machines, Tim should recommend Machine B
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 17P
Related questions
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
|
$2,400
|
|
$4,400
|
|
|
Maintenance per year
|
$4,300
|
|
$1,000
|
|
|
Salvage value
|
$1,600
|
|
$7,500
|
|
He is told to assume that:
1. The life of each machine is
3
years.2. The company thinks it knows how to make
12%
on investments no more risky than this one.3. Labor and maintenance are paid at the end of the year.
The NPV for Machine
A=$nothing
(round your response to the nearest whole number and include a minus sign if necessary).The NPV for Machine
B=$00
(round your response to the nearest whole number and include a minus sign if necessary).Using the net present value as the basis of comparing the machines, Tim should recommend
Machine B
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