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
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Original Cost
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$12,000
|
|
$24,000
|
|
|
Labor per year
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$2,000
|
|
$4,400
|
|
|
Maintenance per year
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$4,300
|
|
$1,000
|
|
|
Salvage value
|
$2,000
|
|
$7,200
|
|
He is told to assume? that:
1. The life of each machine is 3 years.
2. The company thinks it knows how to make 8?% 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. Calculate 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?