SOLUTION 5.
| | Machine X | Machine Y | ||
Year | Discounting factor | Cash inflows | Present value | Cash inflows | Present value |
1 | 0.909 | 3,275 | 2977 | 11,375 | 10340 |
2 | 0.826 | 5,375 | 4440 | 9,375 | 7744 |
3 | 0.751 | 7,375 | 5539 | 7,375 | 5539 |
4 | 0.683 | 9,375 | 6403 | 5,375 | 3671 |
5 | 0.621 | 11,375 | 7064 | 3,375 | 2096 |
| | | 26423 | | 29390 |
Machine X:
Present value of cash inflows 26423 + 10000
Less: Present value of cash outflow 56125 – 3000
___________-
- 16702
Machine Y:
Present value of cash inflows 29390 + 20000
Less: Present value of cash outflow 56125 – 3000
___________
- 3735
Machine Y is better Because Of higher NPV
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