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		$28,000
Labor per year	$2,000		$4,800
Maintenance per year	$4,000		$800
Salvage value	$1,600		$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

14​%

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).

Answer 1

Computation of NPV- Machine A
Cash Flow	Time	Amount	X	PVF@14%	=	Present Value
Original Cost	0	$15,000	X	1	=	$15,000
Labour Per Year	1-3	2000	X	2.32163	=	$4,643
Maintainance per year	1-3	4000	X	2.32163	=	$9,287
Salvage Value	3	1600	X	0.67497	=	$1,080
Net Present Value						$30,010

Computation of NPV- Machine B- Tim Smunt
Cash Flow	Time	Amount	X	PVF@14%	=	Present Value
Original Cost	0	$28,000	X	1	=	$28,000
Labour Per Year	1-3	4800	X	2.32163	=	$11,144
Maintainance per year	1-3	800	X	2.32163	=	$1,857
Salvage Value	3	7200	X	0.67497	=	$4,860
Net Present Value						$45,861