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Determine which machine is preferable and why

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Question - A corporation is faced with a choice between two machines, Beta and Zeta, both of which are designed to improve operations by saving on labour costs. Beta costs $30,000, and has a useful life of 10 years. Beta will generate an annual savings of $6,500 from year two up to the life of the machine, and is estimated to have a salvage value of 10% of its original cost. Zeta costs $45,000 and has a useful life of 12 years. Moreover, there are no savings from Zeta for the first 3 years. The annual savings of $7500 for Zeta will begin from year four up to its useful life, and will have salvage value estimated to be 12% of its original cost. Assuming that cost of capital is 11% per annum, provide an analysis based on net present value to determine which machine is preferable, and why?

Reference no: EM133093108

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