MKM International is seeking to purchase a new CNC machine in order to reduce costs. Two alternative machines are in consideration. Machine 1 costs $450,000, but yields a 15 percent savings over the current machine used. Machine 2 costs $800,000, but yields a 25 percent savings over the current machine used. In order to meet demand, the following forecasted cost information for the current machine is also provided. LOADING... Year Project Cost 1 1,000,000 2 1,350,000 3 1,450,000 4 1,550,000 5 2,550,000 a. Based on the NPV of the cash flows for these 5 years, which machine should MKM International purchase? Assume a discount rate of 12 percent. Assuming a discount rate of 12 percent, MKM International should purchase ▼ machine 1 or machine 2 because the NPV of machine 1 is $------ and the NPV of machine 2 is $--------. (Enter your responses rounded to the nearest whole number.) b. If MKM International lowered its required discount rate to 9 percent, what machine would it purchase? Assuming a discount rate of 9 percent, MKM International should purchase ▼ machine 2 machine 1 because the NPV of machine 1 is $-------- and the NPV of machine 2 is $------- (Enter your responses rounded to the nearest whole number.)
MKM International is seeking to purchase a new CNC machine in order to reduce costs. Two alternative machines are in consideration. Machine 1 costs $450,000, but yields a 15 percent savings over the current machine used. Machine 2 costs $800,000, but yields a 25 percent savings over the current machine used. In order to meet demand, the following forecasted cost information for the current machine is also provided. LOADING... Year Project Cost 1 1,000,000 2 1,350,000 3 1,450,000 4 1,550,000 5 2,550,000 a. Based on the NPV of the cash flows for these 5 years, which machine should MKM International purchase? Assume a discount rate of 12 percent. Assuming a discount rate of 12 percent, MKM International should purchase ▼ machine 1 or machine 2 because the NPV of machine 1 is $------ and the NPV of machine 2 is $--------. (Enter your responses rounded to the nearest whole number.) b. If MKM International lowered its required discount rate to 9 percent, what machine would it purchase? Assuming a discount rate of 9 percent, MKM International should purchase ▼ machine 2 machine 1 because the NPV of machine 1 is $-------- and the NPV of machine 2 is $------- (Enter your responses rounded to the nearest whole number.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
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MKM International is seeking to purchase a new CNC machine in order to reduce costs. Two alternative machines are in consideration. Machine 1 costs
forecasted cost information for the current machine is also provided.
$450,000,
but yields a 15 percent savings over the current machine used. Machine 2 costs
$800,000,
but yields a 25 percent savings over the current machine used. In order to meet demand, the following LOADING...
|
Year
|
Project Cost
|
|
1
|
1,000,000
|
|
2
|
1,350,000
|
|
3
|
1,450,000
|
|
4
|
1,550,000
|
|
5
|
2,550,000
|
a. Based on the NPV of the cash flows for these 5 years, which machine should MKM International purchase? Assume a discount rate of
12
percent.Assuming a discount rate of
because the NPV of machine 1 is
12
percent, MKM International should purchase
▼
machine 1
or
machine 2
$------
and the NPV of machine 2 is
$--------.
(Enter your responses rounded to the nearest whole number.)b. If MKM International lowered its required discount rate to
9
percent, what machine would it purchase?Assuming a discount rate of
because the NPV of machine 1 is
9
percent, MKM International should purchase
▼
machine 2
machine 1
$--------
and the NPV of machine 2 is
$-------
(Enter your responses rounded to the nearest whole number.)Expert Solution
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