In: Finance
We use the LCM method for comparison.This translates to 20 years
Accordingly the cash flows are
Year | Machine A | Machine B |
0 | -892000 | -1118000 |
1 | -28200 | -19500 |
2 | -28200 | -19500 |
3 | -28200 | -19500 |
4 | -920200 | -19500 |
5 | -28200 | -1137500 |
6 | -28200 | -19500 |
7 | -28200 | -19500 |
8 | -920200 | -19500 |
9 | -28200 | -19500 |
10 | -28200 | -1137500 |
11 | -28200 | -19500 |
12 | -920200 | -19500 |
13 | -28200 | -19500 |
14 | -28200 | -19500 |
15 | -28200 | -1137500 |
16 | -920200 | -19500 |
17 | -28200 | -19500 |
18 | -28200 | -19500 |
19 | -28200 | -19500 |
20 | -28200 | -19500 |
Depreciation has been ignored since there is no tax rate.
NPV of each machine is
NPV A | -2132157.98 |
NPV B | -2209649.09 |
Hence machine A should be preferred since it has lower costs and higher NPV
WORKINGS