The Wolford Company is trying to choose between two machines it can use to produce one of its products. Both machines are capable of producing sufficient quantities to maintain annual sales of $220,000. Machine X costs $180,000 and has a four-year economic life. If this machine is used, net operating expenses will be $55,000 per year. Machine y costs $280,000 and has a five-year economic life. If this machine is used, net operating expenses are expected of be $40,000 per year. Either machine will be depreciated on a straighten line basis for tax purposes to a zero salvage value. The firm's cost of capital is 12% and its marginal tax rate is 40%
a) What is the NPV of machine X and Y over their economic lives?
b) What is the NPV of machine X and Y using replacement chain to solve the comparison problem of unequal life?
c) Which machine will do more to increase shareholder wealth?