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×NG.rs My , et xYG YOU As. ×V chapter/Xy.Chapter ( ×enpul.1.* https:// nnectiht omework Help Seve & Exh Esquire Company needs to acquire a molding machine to be used in ias manufacturing process. Two types of machines that wouid be appropriate are presently on the market. The company has determined the following (E.Y.ot $.PV Of S1 EVA ot S1 EMA otsi EVADaf 51 and PVAD oL S) (Use appropriate factoris) from the tables provided Machine A could be purchased for S16.500. It wil last 10 years with annual martenance costs of S600 per year Aner machine can be sold for $1,650 years Machine B could be purchased for $15.000, it also witt last 10 years and will require maintenance costs of $2.400 in year three $3000 in year six, and $3.600 in year eight Ater 10 years, the machine ws have no salvage volue Required: Assume an interest rate of 8% property reflects th+ tine vatie of money in this Stiation and that menenance costs are paid at the tax considerations (Negative amounts should be indiceted by a minus sign Do not round intermediate calculations. Round your finel answers to nenrest whole doilar amount) the present value of Machine A & Machine 8 which machine Esquire shouid purchase Machine EB Esquire shouls urchesaExplanation / Answer
The machine having less Present Value of Cash Outflow should be purchased.
Machine A -- Present Value of Cash Outflow
Year
Cash Flow
PV factor @ 8%
Present Value
(a)
(b)
(a*b)
0
Cost of Machine
($16,500)
1.000000
($16,500)
1
Annual maintenance costs
($600)
0.925926
($555.5556)
2
Annual maintenance costs
0.857339
($514.4034)
3
Annual maintenance costs
($600)
0.793832
($476.2992)
4
Annual maintenance costs
($600)
0.735030
($441.018)
5
Annual maintenance costs
($600)
0.680583
($408.3498)
6
Annual maintenance costs
0.630170
($378.102)
7
Annual maintenance costs
($600)
0.583490
($350.094)
8
Annual maintenance costs
($600)
0.540269
($324.1614)
9
Annual maintenance costs
0.500249
($300.1494)
10
Annual maintenance costs
($600)
0.463193
($277.9158)
10
Salvage Value
0.463193
$764.26845
Present Value of Cash Outflow
($19761.78)
Machine B -- Present Value of Cash Outflow
Year
Cash Flow
PV factor @ 8%
Present Value
(a)
(b)
(a*b)
0
Cost of Machine
($15,000)
1.000000
($15,000)
1
0.925926
$0
2
0.857339
$0
3
Maintenance costs
($2,400)
0.793832
($1905.1968)
4
0.735030
$0
5
0.680583
$0
6
Maintenance costs
($3,000)
0.630170
($1890.51)
7
0.583490
$0
8
Maintenance costs
($3,600)
0.540269
($1944.9684)
9
0.500249
$0
10
Salvage Value
$0
0.463193
$0
Present Value of Cash Outflow
($20740.68)
As present value of cash outflow for machine A is lower than PV of cash outflow for machine B, machine A should be purchased.
Note: Salvage is cash inflow. So it is shown in positive value.
Year
Cash Flow
PV factor @ 8%
Present Value
(a)
(b)
(a*b)
0
Cost of Machine
($16,500)
1.000000
($16,500)
1
Annual maintenance costs
($600)
0.925926
($555.5556)
2
Annual maintenance costs
($600)0.857339
($514.4034)
3
Annual maintenance costs
($600)
0.793832
($476.2992)
4
Annual maintenance costs
($600)
0.735030
($441.018)
5
Annual maintenance costs
($600)
0.680583
($408.3498)
6
Annual maintenance costs
($600)0.630170
($378.102)
7
Annual maintenance costs
($600)
0.583490
($350.094)
8
Annual maintenance costs
($600)
0.540269
($324.1614)
9
Annual maintenance costs
($600)0.500249
($300.1494)
10
Annual maintenance costs
($600)
0.463193
($277.9158)
10
Salvage Value
$16500.463193
$764.26845
Present Value of Cash Outflow
($19761.78)
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