Question

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 comma 000$12,000		$ 20 comma 000$20,000
Labor per year	$ 2 comma 400$2,400		$ 4 comma 400$4,400
Maintenance per year	$ 4 comma 300$4,300		$ 800$800
Salvage value	$ 1 comma 600$1,600		$ 7 comma 000$7,000

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.

The NPV for Machine

A=​$

​(round your response to the nearest whole number and include a minus sign if​ necessary).

Answer 1

Year	Cashflow	PVF at 8%	Present value
0	-12000	1	-12000
1	-6700	0.925926	-6203.7
2	-6700	0.857339	-5744.17
3	-5100	0.793832	-4048.54
Net present value			-27996.4
Answer is:
NPV of Machine -A:    ($ 27996.42)