Question

"A company is considering two types of machines for a manufacturing process. Machine A has an immediate cost of $75,000, and its salvage value at the end of 6 years of service life is $21,000. The operating costs of this machine are estimated to be $3600 per year. Extra income taxes are estimated at $2300 per year.
Machine B has an immediate cost of $43,000, and its salvage value at the end of 6 years' service is negligible. The annual operating costs for Machine B will be $10,000. There are no extra income taxes with Machine B.
Compare these two mutually exclusive alternatives by the present-worth method at i = 12.2%. Enter the ""net present cost"" as a positive number for the machine that you would select. You must select one of the two machines."

Answer 1

Present worth of machine A is calculated in excela nd screen shot provided below:

Present worth of machine A is -$88,594.55.

Again,

Present worth of machine B is calculated in excela nd screen shot provided below:

Present worth of machine B is -$83,882.24.

Since, Present worth of machine B is higher than present worth of machine A, so comapny should choose machine B.