ms-04 mba assignment july dec 2010 Question5

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