Homework Answers
| Machine A | $ | CF | Calculation | Value |
| Installation cost | -4500 | 1 | -4500 | |
| Annual Cost | -270 | 2.577097 | =(1/1.08)+(1/(1.08)2+(1/(1.08)3 | -695.816 |
| Salvage Value | 100 | 0.793832 | =1/(1.08)3 | 79.38322 |
| Net cash outflow | -5116.43 |
| Machine B | $ | CF | Value | |
| Installation cost | -8000 | 1 | -8000 | |
| Annual Cost | -285 | 4.62288 | =(1/1.08)+1/(1.08)2+1/(1.08)3 + 1/(1.08)4 + 1/(1.08)5 + 1/(1.08)6 | -1317.52 |
| Salvage Value | 200 | 0.63017 | =1/(1.08)6 | 126.0339 |
| Net cash outflow | -9191.49 |
As the net cash outflow is less in case of Machine A it is preferable to accept bid for Machine A.
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