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Acme International is thinking about purchasing a new widget making machine. Management is reviewing two proposals, each of which has a purchase price of $80,000.

Proposal A: it will generate annunal operating cash flow of $13,000 per year for 15 years.

Proposal B: it will genetate annual operating cash flow of $20,800 for 7 years but will involve disposal costs of $11,000 at the end of year 7.

Acme's cost of capital is 10%.

For each of the proposals, determine: (a) payback (b) IRR (c) NPV (d) which machine should Acme purchase? Why?

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M9347109

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