Homework Answers
A)
NPV for Machine X = 2400000+500000/((1+0.09)^1)+500000/((1+0.09)^2)+500000/((1+0.09)^3)+500000/((1+0.09)^4)+500000/((1+0.09)^5)+500000/((1+0.09)^6)+500000/((1+0.09)^7) = 4916476
NPV for Machine Y = 2800000+200000/((1+0.09)^1)+200000/((1+0.09)^2)+200000/((1+0.09)^3)+200000/((1+0.09)^4)+200000/((1+0.09)^5)+200000/((1+0.09)^6)+200000/((1+0.09)^7)+200000/((1+0.09)^8)+200000/((1+0.09)^9) = 3999049
B)
Annuity factor for Machine X = (1-(1/((1+0.09)^7)))/0.09 = 5.0329
EAC for machine X = (2400000/5.0329)+500000 = 976862.2
Annuity factor for Machine Y = (1-(1/((1+0.09)^9)))/0.09 = 5.9952
EAC for machine Y = (2800000/5.9952)+200000 = 667040.3
C) As, EAC & NPV for Machine Y is less than that of Machine X, Machine Y will be cheaper for use.
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