Please show all work with equations. No excel please! Thanks!
QZY Inc. is evaluating new widget machines offered by three companies.
MARR = 15%. From which company, if any, should you buy the widget machine? Use rate of return analysis.
Company A 
Company B 
Company C 

First Cost, $ 
15,000 
25,000 
20,000 
Maintenance & Operating Costs, $ 
1,600 
400 
900 
Annual Benefit, $ 
8,000 
13,000 
9,000 
Salvage Value, $ 
3,000 
6,000 
4,500 
Useful Life, in years 
3 
3 
3 
Solution:
You need to calculate the NPV to take the decision
NPV
Machine A = 15000 + (80001600)/(1+.15)^1 + (80001600)/(1+.15)^2 + (80001600)/(1+.15)^3 + 3000/(1+.15)^3 = 1584.19
Machine B = 25000 + (3000400)/(1+.15)^1 + (3000400)/(1+.15)^2 + (3000400)/(1+.15)^3 + 6000/(1+.15)^3 = 15118.52
Machine C = 20000 + (9000900)/(1+.15)^1 + (9000900)/(1+.15)^2 + (9000900)/(1+.15)^3 + 4500/(1+.15)^3 = 10233.25
Based on the above calculations, you should buy from Company C as it offers the highest NPV.
(Company C) is the correct answer.
Get Answers For Free
Most questions answered within 1 hours.