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Tim Smunt has been asked to evaluate two machines. After some investigation, he determines that they have the costs shown in the following table: Machine A Machine B Original Cost $12,000 $20,000 Labor per year $2,400 $4,400 Maintenance per year $4,000 $1,200 Salvage value $1,600 $7,500 He is told to assume that: 1. The life of each machine is 33 years. 2. The company thinks it knows how to make 88% on investments no more risky than this one. 3. Labor and maintenance are paid at the end of the year. 1. What is the NPV Value of Machine A? 2. Calculate the NPV for Machine B 3. Using the net present value as the basis of comparing the machines, Tim should recommend Machine A or B?

Tim Smunt has been asked to evaluate two machines. After some investigation, he determines that they have the costs shown in the following table: Machine A Machine B Original Cost $12,000 $20,000 Labor per year $2,400 $4,400 Maintenance per year $4,000 $1,200 Salvage value $1,600 $7,500 He is told to assume that: 1. The life of each machine is 33 years. 2. The company thinks it knows how to make 88% on investments no more risky than this one. 3. Labor and maintenance are paid at the end of the year. 1. What is the NPV Value of Machine A? 2. Calculate the NPV for Machine B 3. Using the net present value as the basis of comparing the machines, Tim should recommend Machine A or B?

Advanced Engineering Mathematics
Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
Section: Chapter Questions
Problem 1RQ
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Tim Smunt has been asked to evaluate two machines. After some investigation, he determines that they have the costs shown in the following table: Machine A Machine B Original Cost $12,000 $20,000 Labor per year $2,400 $4,400 Maintenance per year $4,000 $1,200 Salvage value $1,600 $7,500 He is told to assume that: 1. The life of each machine is 33 years. 2. The company thinks it knows how to make 88% on investments no more risky than this one. 3. Labor and maintenance are paid at the end of the year. 1. What is the NPV Value of Machine A? 2. Calculate the NPV for Machine B 3. Using the net present value as the basis of comparing the machines, Tim should recommend Machine A or B?
Transcribed Image Text:Tim Smunt has been asked to evaluate two machines. After some investigation, he determines that they have the costs shown in the following table: Machine A Machine B Original Cost $12,000 $20,000 Labor per year $2,400 $4,400 Maintenance per year $4,000 $1,200 Salvage value $1,600 $7,500 He is told to assume that: 1. The life of each machine is 33 years. 2. The company thinks it knows how to make 88% on investments no more risky than this one. 3. Labor and maintenance are paid at the end of the year. 1. What is the NPV Value of Machine A? 2. Calculate the NPV for Machine B 3. Using the net present value as the basis of comparing the machines, Tim should recommend Machine A or B?
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