Jen-Eric Manufacturing Ltd. wants to know the net present value of two different machines they are...
Jen-Eric Manufacturing Ltd. wants to know the net present value of two different machines they are considering purchasing. Machine 1 will cost $1,000,000 today and will generate the following cash flows:
|
Year 1 |
$312,000 |
|
Year 2 |
$463,000 |
|
Year 3 |
$490,000 |
|
Year 4 |
$417,000 |
The salvage value for Machine 1 is $100,000 at the end of year 4. The cost of capital is 10%.
Machine 2 will cost $900,000 to purchase and will generate cash flows of $400,000 each year. Its salvage value is $40,000 at the end of year 4.
Calculate the net present value and internal rate of return of each machine.
Based on this information, which machine should the company purchase?
What additional information should Jen-Eric consider before making a decision?
Homework Answers
Machine 2 would be more acceptable, as both the NPV and IRR higher for machine 2.
**Pleas feel free to ask me if any more explanations are needed.
Thank You..!!
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