Citrus Enterprises is upgrading its fruit washing/separating machine. Citrus Enterprises has narrowed the decision down to two machines: Machine A and Machine B. Pertinent information about each machine includes: Machine B$450,000Machine AInvestment$650,000Useful life (years)1010Estimated annual net cash inflows for usefullife$75,000$120,000Residual value$30,000Depreciation methodRequired rate of return$30,000straight-line10%straight-line12%Present Value of $1Periods10%12%0.3610.3220.2879.0.4240.3860.3501011Present Value of Annuity of $1Periods10%12%9.5.7595.3286.1456.495105.650115.938Required:Calculate the net present value of Machine A.b. Calculate the net present value of Machine B.Using the net present value method, which machineshould the company select if it can select only oneа.c.investment?

Particulars Machine A Machine B Investment 450000 650000 Useful life 10 10 Annual Cash inflow…

Machine B $450,000 Machine A Investment $650,000 Useful life (years) 10 10 Estimated annual net cash inflows for useful life $75,000 $120,000 $30,000 straight-line 10% Residual value $30,000 Depreciation method Required rate of return straight-line 12% Present Value of $1 Periods 10% 12% 0.424 0.386 9 0.361 0.322 0.287 10 11 0.350 Present Value of Annuity of $1 Periods 10% 12% 5.759 6.145 5.328 5.650 9 10 11 6.495 5.938 Required: Calculate the net present value of Machine A. Calculate the net present value of Machine B. c. Using the net present value method, which machine should the company select if it can select only one investment? a. b. с.

Machine B $450,000 Machine A Investment $650,000 Useful life (years) 10 10 Estimated annual net cash inflows for useful life $75,000 $120,000 $30,000 straight-line 10% Residual value $30,000 Depreciation method Required rate of return straight-line 12% Present Value of $1 Periods 10% 12% 0.424 0.386 9 0.361 0.322 0.287 10 11 0.350 Present Value of Annuity of $1 Periods 10% 12% 5.759 6.145 5.328 5.650 9 10 11 6.495 5.938 Required: Calculate the net present value of Machine A. Calculate the net present value of Machine B. c. Using the net present value method, which machine should the company select if it can select only one investment? a. b. с.

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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