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Question
Saxon Manufacturing is considering purchasing two machines. Each machine costs $9,000 and will produce cash flows as follows:
| End of | Machine | |
| Year | A | B |
| 1 | $5,000 | $1,000 |
| 2 | 4,000 | 2,000 |
| 3 | 2,000 | 11,000 |
Saxon 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 Saxon purchase?
A. Only Machine A is acceptable.
B. Only Machine B is acceptable.
C. Both machines are acceptable, but A should be selected because it has the greater net present value.
D. Both machines are acceptable, but B should be selected because it has the greater net present value.
E. Neither machine is acceptable.
Answer
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Related questions
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