The following costs and useful life data are associated with two new machines being considered at Arun Tech Inc.

Data A B
Useful Life (Years) 11 19
First Cost $250,000 $460,000
Salvage Value $13,000 $26,000
Annual Profit $92,000 $103,000

The company interest rate (MARR) is 12%. Which machine should be purchased?

While Machine B has an slightly higher net present value his annual worth is much lower than machine A therefore, the company should purchase machine A which yield better annual return

Machine A

Net Present Value: 300,005.00

Anual worth  $ 50,525.463

Machine B

Net Present Value: 301.693,8‬

Anual worth  $ 40,958.857

Explanation:

We calculate the present value of each machine

and also, the annual worth of each one to get a fair comparison considering their useful life differ

Machine A

C92,000.00

time11

rate0.12

PV$546,268.3202

Maturity  $13,000.00

time  11.00

rate  0.12000

PV   3,737.1894

Net Present Value:

$546,268.32 + $3,737.19 - $250,000 = 300.005,51‬

Annual worth:

PV300,005.00

time11

rate0.12

C  $ 50,525.463

Machine B

C103,000.00

time19

rate0.12

PV$758,675.0165

Maturity  $26,000.00

time  19.00

rate  0.12000

PV   3,018.7762

Net present value

$758,675.02 + $3,018.78 - 460,000 = 301.693,8‬

Annual worth

PV301,693.80

time19

rate0.12

C  $ 40,958.857

c, theres a double tax on the business earnings

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