1. Two new machines are being evaluated for possible purchase. Forecasts relating to the two machines are:
|
Machine 1 |
Machine 2 |
|
|
Purchase price |
$50,000 |
$60,000 |
|
Estimated life (straight line depreciation) |
4 years |
4 years |
|
Estimated scrap value |
None |
None |
|
Annual cash benefits before income tax: |
||
|
Year 1 |
$25,000 |
$45,000 |
|
Year 2 |
25,000 |
19,000 |
|
Year 3 |
25,000 |
25,000 |
|
Year 4 |
25,000 |
25,000 |
|
Income tax rate |
40% |
40% |
Compute the net present value of each machine.
(CGA, adapted)