(Answered) Problem - capital budgetingmammoth company is considering

Accounting

Problem - Capital Budgeting

Mammoth Company is considering the acquisition of two machines

	Machine - Wooly	Machine - Tusk
Initial investment	$224,000	$225,000
Additional annual operating revenues	$90,000	$150,000
Additional annual expenses	$25,000	$85,000
Terminal salvage value	0	0
Estimated useful life	5 years	5 years
Minimum desired rate of return	14%	14%

Assume straight-line depreciation. Ignore income taxes. The present value of an ordinary annuity and 5 periods is 3.4331. The present value of a dollar at 14% and 5 periods is 0.5194.

Required:

A) Calculate the net present value for both machine

B) What is the appropriate purchasing decision for Mammoth Company concerning the Wooly or Tusk machine?

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