For two mutually exclusive machines, which machine will you select if the MARR i
ID: 2825360 • Letter: F
Question
For two mutually exclusive machines, which machine will you select if the MARR is 12% based on the concept of IRR?
Machine A
Machine B
Both need to be rejected.
Both are equally good.
Years CF for Machine A CF for Machine B 0 $ (120,000) $ (148,000) 1 $ 32,000 $ 46,000 2 $ 35,000 $ 49,000 3 $ 38,000 $ 52,000 4 $ 41,000 $ 52,000 5 $ 44,000 $ (52,000) 6 $ (24,000) $ 55,000 7 $ 47,000 $ 55,000 8 $ (21,000) $ (21,000)Explanation / Answer
Answer Machine B Can be selected as it is giving more NPV Explanation Year Discount factor at 12% Machine A Discounted Cash flows Machine B Discounted Cash flows 0 1.00000 (120,000) (120,000) (148,000) (148,000) 1 0.89286 32,000 28,572 46,000 41,072 2 0.79719 35,000 27,902 49,000 39,062 3 0.71178 38,000 27,048 52,000 37,013 4 0.63552 41,000 26,056 52,000 33,047 5 0.56743 44,000 24,967 (52,000) (29,506) 6 0.50663 (24,000) (12,159) 55,000 27,865 7 0.45235 47,000 21,260 55,000 24,879 8 0.40388 (21,000) (8,481) (21,000) (8,481) Net present value 15,164 16,950
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