Pat Maggard needs to purchase a new milling machine. She is considering two different competing machines. Milling Machine A will cost $300,000, and will return $80,000 per year for six years, with no salvage value. Milling machine B will cost $220,000, and will return $60,000 for five years, with a salvage value of $30,000. The firm is currently using 7 percent as the cost of capital. Using Net Present Value as the criterion, which machine should be purchased? What is the total payoff in $ of machine?
Solution
Net present value of Machine A
NPV = R
.
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Pat Maggard needs to purchase a new milling machine- She is considerin.docx
1. Pat Maggard needs to purchase a new milling machine. She is considering two different
competing machines. Milling Machine A will cost $300,000, and will return $80,000 per year for
six years, with no salvage value. Milling machine B will cost $220,000, and will return $60,000
for five years, with a salvage value of $30,000. The firm is currently using 7 percent as the cost
of capital. Using Net Present Value as the criterion, which machine should be purchased? What
is the total payoff in $ of machine?
Solution
Net present value of Machine A
NPV = R
Net present value of Machine A
