Albert Shoe Company is considering investing in one of two machines that attach

Question

Albert Shoe Company is considering investing in one of two machines that attach heels to shoes. Machine A costs $69,640 and is expected to save the company $20,430 per year for six years. Machine B costs $95,380 and is expected to save the company $25,430 per year for six years. Determine the net present value for each machine if the required rate of return is 10 percent. (Ignore taxes.) (Round present value factor calculations to 4 decimal places, e.g. 1.2151 and final answer to 0 decimal places, e.g. 125. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Net present value

Machine A:

Machine B:

Explanation / Answer

Machine A Machine B Cash flow Discount Factor Present Value Cash flow Discount Factor Present Value Cash outflow -69,640.00 1         -69,640.00 -95,380.00 1         -95,380.00 six months cash inflow    20,430.00 4.35526           88,977.96    25,430.00 4.35526       1,10,754.26 Net present value           19,337.96           15,374.26

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