Question

Turk Manufacturing uses the net present value method to make the decision, and it requires a 15% annual return on its investments. The present value factors of 1 at 15% are: 1 year, 0.8696; 2 years, 0.7561; 3 years, 0.6575. Which machine should Turk purchase

Answer 1

E) Only Machine B is acceptable

Step-by-step explanation:

The computation is shown below;

For Machine A

Year Cash Flow PV Factor PV of Cash Flow

0 -$9,000 1 -$9,000

1 $5,000 0.8696 $4,348

2 $4,000 0.761 $3,044

3 $2,000 0.6575 $1,315

NPV -$293

Machine B

Year Cash Flow PV Factor PV of Cash Flow

0 -$9000 1 -$9,000

1 $1,000 0.8696 $869.6

2 $2,000 0.761 $1,522

3 $11,000 0.6575 $7,232.5

NPV $624.1

As we can see that from the above calculations that the npv for machine A is in negative so the same should not be accepted but for machine the npv is in positive so the same should be accepted