P-2. One of your first assignments at the world famous Pez Candy Company located in Milford, Connecticut, is to evaluate two proposals for a new candy wrapping machine. Machine 1 will result in an annual cost savings (and therefore an increased profit) of $50,000. The machine costs $175,000. The useful life of machine 1 is 6 years. The cost of capital has been estimated to be 12%. Machine 2's cost is $200.232.60, however it's useful life is greater at 10 years and its cost of capital is slightly lower at 11%. The estimated cost savings for Machine 2 is $36,000 annually. You only need one machine. Using NPV analysis, what do you recommend and why?
P-2. One of your first assignments at the world famous Pez Candy Company located in Milford, Connecticut, is to evaluate two proposals for a new candy wrapping machine. Machine 1 will result in an annual cost savings (and therefore an increased profit) of $50,000. The machine costs $175,000. The useful life of machine 1 is 6 years. The cost of capital has been estimated to be 12%. Machine 2's cost is $200.232.60, however it's useful life is greater at 10 years and its cost of capital is slightly lower at 11%. The estimated cost savings for Machine 2 is $36,000 annually. You only need one machine. Using NPV analysis, what do you recommend and why?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![P-2. One of your first assignments at the world famous Pez Candy Company located in Milford,
Connecticut, is to evaluate two proposals for a new candy wrapping machine. Machine 1 will
result in an annual cost savings (and therefore an increased profit) of $50,000. The machine costs
$175,000. The useful life of machine 1 is 6 years. The cost of capital has been estimated to be
12%.
Machine 2's cost is $200.232.60, however it's useful life is greater at 10 years and its cost of
capital is slightly lower at 11%. The estimated cost savings for Machine 2 is $36,000 annually.
You only need one machine. Using NPV analysis, what do you recommend and why?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5dba095d-c5c0-4e6c-94ff-9d9928d807c0%2F46295389-4064-468c-854f-86915ef67afc%2Fkgaseya_processed.jpeg&w=3840&q=75)
Transcribed Image Text:P-2. One of your first assignments at the world famous Pez Candy Company located in Milford,
Connecticut, is to evaluate two proposals for a new candy wrapping machine. Machine 1 will
result in an annual cost savings (and therefore an increased profit) of $50,000. The machine costs
$175,000. The useful life of machine 1 is 6 years. The cost of capital has been estimated to be
12%.
Machine 2's cost is $200.232.60, however it's useful life is greater at 10 years and its cost of
capital is slightly lower at 11%. The estimated cost savings for Machine 2 is $36,000 annually.
You only need one machine. Using NPV analysis, what do you recommend and why?
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