QUESTION 9 Jimson Inc is considering the purchase of a new machine. Two different machines will suit her purpose. The cash flows are given: Machine Argo Cost $210,000 Estimated net cash flows 24 70,000 80,000 90,000 93,000 Machine Binko Cost $180,000 Estimated net cash flows 24 55,000 70,000 83,000 42,000 Year 1 Year 2 Year 3 Year 4 Calculate the NPV (assuming both machines have useful life of 4 years and have salvage value of 10% of the initial investment) for each of the two machines. The cost of capital of the firm is 10% p.a. The firm uses straight line method depreciation with useful life of 4 years. Advise Jimson Inc which machine is recommended. Justify your answer.

QUESTION 9 Jimson Inc is considering the purchase of a new machine. Two different machines will suit her purpose. The cash flows are given: Machine Argo Cost $210,000 Estimated net cash flows 24 70,000 80,000 90,000 93,000 Machine Binko Cost $180,000 Estimated net cash flows 24 55,000 70,000 83,000 42,000 Year 1 Year 2 Year 3 Year 4 Calculate the NPV (assuming both machines have useful life of 4 years and have salvage value of 10% of the initial investment) for each of the two machines. The cost of capital of the firm is 10% p.a. The firm uses straight line method depreciation with useful life of 4 years. Advise Jimson Inc which machine is recommended. Justify your answer.

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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