(Answered) Question - two machines -machine m and machine p- are being

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Question - Two machines -Machine M and Machine P- are being considered in a replacement decision. Both machines have about the same purchase price and an estimated ten year life. The company used a 12 percent minimum rate of return as its acceptance- rejection standard. Following are the estimated net cash inflows for each machine.

Year Machine M Machine P

1 $ 12,000 $ 17,500

2 12,000 17,500

3 14,000 17,500

4 19,000 17,500

5 20,000 17,500

6 22,000 17,500

7 23,000 17,500

8 24,000 17,500

9 25,000 17,500

10 20,000 17,500

Residual Value 14,000 12,000

1. Compute the present value of future cash flows for each machine, using tables 1 and 2 in the appendix on present value tables.

2. Which machine should the company purchase, assuming that both involve the same capital investment?

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