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Smithson Foods is looking at purchasing new equipment for mixing pastry to make pies. Two different...

Smithson Foods is looking at purchasing new equipment for mixing pastry to make pies. Two different manufacturers are being considered. The Jorgan’s Mixmaster costs $24,000 and requires annual maintenance costs of $1,950 per year. The Xiaolong Mixer costs $20,000 but with annual maintenance costs of $2,600 per year. Assume the maintenance costs are incurred at the end of the year, including the final year. Regardless of which machine is chosen, Smithson intends to replace the mixer in 7 years. In 7 years, it is estimated that a used Jorgan’s can be sold for $6,500 whereas a used Xiaolong would sell for $5,800. If Smithson uses a rate of 18% compounded annually to evaluate equipment investments, which machine should they choose? (which machine has lower NPV of costs?)

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jeff jeffy answered 11 hours ago
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