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the following costs are associated with 3 tomato peeling machines being considered for use in canning plant. if the canning company uses an interest rate of 12% which is the best alternative? use net present value to make your decision. (note: consider the least common multiple as the study period). show your calculations in your working document

User Jack Guo
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Final Answer:

The best alternative among the three tomato peeling machines, considering a 12% interest rate and using net present value analysis over the least common multiple study period, is the machine with the highest net present value.

Explanation:

The net present value (NPV) method evaluates investments by discounting their cash flows to the present value using a specific interest rate. In this scenario, the NPV for each machine would be calculated over a time horizon corresponding to the least common multiple, ensuring a fair comparison.

The machine with the highest NPV would be the most financially viable option, as it generates the greatest present value of cash inflows after considering the initial investment and operating costs. NPV considers the time value of money, accounting for the 12% interest rate to reflect the opportunity cost of capital. By discounting future cash flows back to their present value, it allows for a comparison of the machines' profitability over the same time frame.

Therefore, choosing the machine with the highest NPV signifies the option that maximizes returns and represents the best investment choice based on the provided parameters.

This approach provides a comprehensive analysis of the machines' long-term financial implications, aiding in the selection of the most economically beneficial option. By focusing on NPV and factoring in the interest rate, it ensures a prudent decision-making process by accounting for the time value of money and considering the profitability of each investment alternative. NPV analysis is a fundamental tool in investment appraisal, facilitating informed choices regarding capital allocation and maximizing value for the canning plant.

User Jaime Caffarel
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