Question

Problem 5-1 (Algo) Analysis of alternatives (LO5-3, 5-8) Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Machine A could be purchased for $55,000. It will last 10 years with annual maintenance costs of $1,900 per year. After 10 years the machine can be sold for $5,775. Machine B could be purchased for $50,000. It also will last 10 years and will require maintenance costs of $7,600 in year three, $9,500 in year six, and $11,400 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.) PV Machine A Machine B Esquire should purchase $ $ Machine A 13,149 13,827

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Poesent Value Analysis : Particulars Pufactor Present Value year & Madea Mach-B Machia Mach. B ($55000 ($ 500rb 1 0 6-7100 **1-10 $1900) ($5500 (toooo! ($12249) |C#6032 $598519 0.7938 м (57600) 6 (+9500 0-6301 ($6158.28 8 ($11400) 0.5402 10 $5775 0-4631 $2674.40 NIL scrapvalus NPV ($65074-6) ($68176-98 ( NPV should be higher > Better Hence, NPV for Machine A is Higher. Hence, Machine ® is Better. for pr factor, see Anuity Table. ev anuity factor for 10 year is commuletine. Either you can separately year wise add on Basis. THANK YOU!! CS Scanned with CamScanner

18J * Scoal value is added back at last- Maintainan to cost is outlay so it is deducted Purchase / initial Cost is outley of cash. There is No Revenue data given means (cash in) & tence only outlay of Cash given, so working accordingly. CS Scanned with CamScanner