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Category > Accounting Posted 21 Apr 2017 My Price 7.00

Two machines –Machine M and Machine P

Two machines –Machine M and Machine P- are being considered in a replacement decision. Both machines have about the same purchase price and an estimated ten year life. The company used a 12 percent minimum rate of return as its acceptance- rejection standard. Following are the estimated net cash inflows for each machine.

 

Year Machine M Machine P

1 $ 12,000 $ 17,500

2 12,000 17,500

3 14,000 17,500

4 19,000 17,500

5 20,000 17,500

6 22,000 17,500

7 23,000 17,500

8 24,000 17,500

9 25,000 17,500

10 20,000 17,500

Residual Value 14,000 12,000

 

1. Compute the present value of future cash flows for each machine, using tables 1 and 2 in the appendix on present value tables.

2. Which machine should the company purchase, assuming that both involve the same capital investment?

Answers

SuperTutor
(15)
Status NEW Posted 21 Apr 2017 03:04 AM My Price 7.00

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