Question

A) Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following:

Machine A could be purchased for $47429. It will last 10 years with annual maintenance costs of $1433 per year. After 10 years the machine can be sold for $5989.

Machine B could be purchased for $44501. It also will last 10 years and will require maintenance costs of $4363 in year three, $5954 in year six, and $6368 in year eight. After 10 years, the machine will have no salvage value.

Required: Determine the present value of the costs for Machine B. Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations.

B) Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following:

Machine A could be purchased for $47827. It will last 10 years with annual maintenance costs of $1432 per year. After 10 years the machine can be sold for $5068.

Machine B could be purchased for $36637. It also will last 10 years and will require maintenance costs of $4387 in year three, $5236 in year six, and $5293 in year eight. After 10 years, the machine will have no salvage value.

Required: Determine the present value of the costs for Machine A. Assume an interest rate of 9% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations

Answer 1