Reference no: EM13503440

Present Value Computations

Two machines - Machine M and Machine P - are being considered in a replacement decision. Both machines have about the same purchase price and an estimated ten-year life. The company uses a 12 percent minimum rate of return as its acceptance-rejection standard. The estimated net cash inflows for each machine follow.

Year	Machine M		Machine P
1	$12,000		$17,500
2	12,000		17,500
3	14,000		17,500
4	19,000		17,500
5	20,000		17,500
6	22,000		17,500
7	23,000		17,500
8	24,000		17,500
9	25,000		17,500
10	20,000		17,500
Residual value	14,000		12,000

 

1. Compute the present value of future cash flows for each machine, using Table 1 and Table 2.

	Total Present Value
Machine M	$
Machine P	$