MKM International is seeking to purchase a new CNC ma-chine in order to reduce costs. Two alternative machines arein consideration. Machine 1 costs $500,000 but yields a 15 per-cent savings over the current machine used. Machine 2 costs$900,000 but yields a 25 percent savings over the current ma-chine used. In order to meet demand, the following forecastedcost information for the current machine is also provided.a. Based on the NPV of the cash flows for these five years,which machine should MKM International Purchase? As-sume a discount rate of 12 percent.b. If MKM International lowered its required discount rate to8 percent, what machine would it purchase?Year Projected Cost1 1,000,0002 1,350,0003 1,400,0004 1,450,0005 2,550,000
MKM International is seeking to purchase a new CNC ma-
chine in order to reduce costs. Two alternative machines are
in consideration. Machine 1 costs $500,000 but yields a 15 per-
cent savings over the current machine used. Machine 2 costs
$900,000 but yields a 25 percent savings over the current ma-
chine used. In order to meet demand, the following forecasted
cost information for the current machine is also provided.
a. Based on the
which machine should MKM International Purchase? As-
sume a discount rate of 12 percent.
b. If MKM International lowered its required discount rate to
8 percent, what machine would it purchase?
Year Projected Cost
1 1,000,000
2 1,350,000
3 1,400,000
4 1,450,000
5 2,550,000
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