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Calculate the net present value for both machine

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Reference no: EM131879894

Problem - Capital Budgeting

Mammoth Company is considering the acquisition of two machines

 

Machine - Wooly

Machine - Tusk

Initial investment

$224,000

$225,000

Additional annual operating revenues

$90,000

$150,000

Additional annual expenses

$25,000

$85,000

Terminal salvage value

0

0

Estimated useful life

5 years

5 years

Minimum desired rate of return

14%

14%

Assume straight-line depreciation. Ignore income taxes. The present value of an ordinary annuity and 5 periods is 3.4331. The present value of a dollar at 14% and 5 periods is 0.5194.

Required:

A) Calculate the net present value for both machine

B) What is the appropriate purchasing decision for Mammoth Company concerning the Wooly or Tusk machine?

Reference no: EM131879894

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