Question

Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Machine A could be purchased for $63,000. It will last 10 years with annual maintenance costs of $2,000 per year. After 10 years the machine can be sold for $6,615.

Machine B could be purchased for $52,500. It also will last 10 years and will require maintenance costs of $8,000 in year three, $10,000 in year six, and $12,000 in year eight. After 10 years, the machine will have no salvage value.

Required:
Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations.

Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)
  

Find the PV for

Machine A

Machine B

which should be purchased

Answer 1

Calculation of Precent Value of Machine A :-

Years	Cash outflow	PV Factor @ 8%	Precent Value
Purchase Price (0)	$63000	1	$63000
Maintanance Cost (1-10)	$2000	6.71008	$13420
Salvage (10)	($6615)	0.46319	($3064)
Precent Value of Total Cash Outflow			$73356

Calculation of Precent Value of Machine B :-

Year	Cash outflow	PV Factor @ 8%	Precent Value
Purchase Price (0)	$52500	1	$52500
Maintanance Cost in Year Three	$8000	0.79383	$6351
Maintanance Cost in Year Six	$10000	0.63017	$6302
Maintanance Cost in Year Eigth	$12000	0.54027	$6483
Precent Value of Total Cash Outflow			$71636

I Suggests for Purchase Machine B, Because Machine B's Precent Value of Total Outflow Less Than Machine A.