Homework Answers
Answer:
The calculation are as follows:
| Calculation of the Net present value of Machine X and Y | ||||||
| Year | Discounting factor @9% | Cash flow |
PV of the cash
flow of Machine X |
Cash flow |
PV of the cash
flow of Machine Y |
|
| Machine X | Machine Y | |||||
| 0 | $ -2,00,000.00 | $ -2,00,000.00 | $ -1,80,000.00 | $ -1,80,000.00 | ||
| 1 | 0.92 | $ 30,000.00 | $ 27,522.94 | $ 24,000.00 | $ 22,018.35 | |
| 2 | 0.84 | $ 30,000.00 | $ 25,250.40 | $ 24,000.00 | $ 20,200.32 | |
| 3 | 0.77 | $ 30,000.00 | $ 23,165.50 | $ 24,000.00 | $ 18,532.40 | |
| 4 | 0.71 | $ 30,000.00 | $ 21,252.76 | $ 24,000.00 | $ 17,002.21 | |
| 5 | 0.65 | $ 30,000.00 | $ 19,497.94 | $ 24,000.00 | $ 15,598.35 | |
| 6 | 0.60 | $ 30,000.00 | $ 17,888.02 | $ 24,000.00 | $ 14,310.42 | |
| 7 | 0.55 | $ 30,000.00 | $ 16,411.03 | $ 24,000.00 | $ 13,128.82 | |
| 8 | 0.50 | $ 30,000.00 | $ 15,055.99 | $ 24,000.00 | $ 12,044.79 | |
| 9 | 0.46 | $ 30,000.00 | $ 13,812.83 | $ 24,000.00 | $ 11,050.27 | |
| 10 | 0.42 | $ 30,000.00 | $ 12,672.32 | $ 24,000.00 | $ 10,137.86 | |
| 11 | 0.39 | $ 30,000.00 | $ 11,625.99 | $ 24,000.00 | $ 9,300.79 | |
| 12 | 0.36 | $ 30,000.00 | $ 10,666.04 | $ 24,000.00 | $ 8,532.83 | |
| 13 | 0.33 | $ 30,000.00 | $ 9,785.36 | $ 24,000.00 | $ 7,828.29 | |
| 14 | 0.30 | $ 30,000.00 | $ 8,977.39 | $ 24,000.00 | $ 7,181.92 | |
| 15 | 0.27 | $ 30,000.00 | $ 8,236.14 | $ 24,000.00 | $ 6,588.91 | |
| 16 | 0.25 | $ 30,000.00 | $ 7,556.09 | $ 24,000.00 | $ 6,044.87 | |
| 17 | 0.23 | $ 30,000.00 | $ 6,932.20 | $ 24,000.00 | $ 5,545.76 | |
| 18 | 0.21 | $ 30,000.00 | $ 6,359.81 | $ 24,000.00 | $ 5,087.85 | |
| 19 | 0.19 | $ 30,000.00 | $ 5,834.69 | $ 24,000.00 | $ 4,667.75 | |
| 20 | 0.18 | $ 30,000.00 | $ 5,352.93 | $ 24,000.00 | $ 4,282.34 | |
| 20 | 0.18 | $ 45,000.00 | $ 8,029.39 | $ 20,000.00 | $ 3,568.62 | Salvage Value |
| Total Net present value | $ 81,885.76 | $ 42,653.71 | ||||
Hence, the Net present value of Machine X is higher than Machine Y by =($81885.76-$42653.71)= $39,232.05.
Answer: Hence, we should choose machine X.
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