M4 Engineering is considering an investment in one of two machines.The CNC machine will increase productivity from producing 150 airplane mounting clamps per hour to producing 290 per hour. The contributionmargin per unit is $0.32 per clamp. Assume that any increased production of clamps can be sold.The second machine is an automatic packing machine. The packing machine will reduce packing labor cost. The labor cost saved is equivalent to $21per hour.The CNC machine will cost $260,000, have an eight-year life, and will operate for 1,800 hours per year. The packing machine will cost $85,000, have aneight-year life, and will operate for 1,400 hours per year. M4 Engineering seeks a minimum rate of return of 15% on its investments.Calculate the NPV and PV index for both machines (the packing machine will have a higher PV index). Utilize the PV tables from chapter 11/ chapter 25 foryour calculations. What machine should be purchased? Address both financial and non-financial reasons for your decision. Is there ever a reason to chosean alternative that is not the best financially?

PV index is the measure of efficiency under capital rationing for taking investment decisions. It is…

Answered: M4 Engineering is considering an…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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