PROBLEM 9-3. Choosing among Alternative Investments [LO 2]

Quality Shoe Company is considering investing in one of two machines that attach heels to shoes. Machine A costs $70,000and is expected to save the company $20,000 per year for six years. Machine B costs $95,000 and is expected to save the company $25,000 per year for six years. Determine the net present value for each machine and decide which machine should be purchased if the required rate of return is 10 percent. Ignore taxes.

Quality Shoe Company is considering investing in one of two machines that attach heels to shoes. Machine A costs $70,000and is expected to save the company $20,000 per year for six years. Machine B costs $95,000 and is expected to save the company $25,000 per year for six years. Determine the net present value for each machine and decide which machine should be purchased if the required rate of return is 10 percent. Ignore taxes.

Please find... View Full Answer

**Download Preview:**

Solution :Calulation of net present value :-

Amount (in $)

Machine A

Year

Particulars

0

1

2

3

4

5

6

Cost of Machine

Savings to Company

Savings to Company

Savings to Company

Savings to Company...