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MKM International is seeking to purchase a new CNC machine in order to reduce costs. Two...

MKM International is seeking to purchase a new CNC machine in order to reduce costs. Two alternative machines are in consideration. Machine 1 costs $400,000 but yields a 15 percent savings over the current machine used. Machine 2 costs $850,000 but yields a 25 percent savings over the current machine used. In order to meet demand, the following forecasted cost information for the current machine is also provided. Year Projected Cost 1 950,000 2 1,350,000 3 1,400,000 4 1,550,000 5 2,550,000 Based on the NPV of the cash flows for these 5 years, which machine should MKM International purchase? Assume a discount rate of 10 percent.

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The MKM International Should Purchase Machine 2 as it provides more NPV.

jeff jeffy answered 1 year ago
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