Rotor Turbine Engine Company needs a new automated gear production machine. It has two bids with associated estimated data:
Company A, Company B
Initial Cost: $85,000, $110,000
Estimated end of the year net income for:
Year 1: $45,000, $61,000
Year 2: $40,000, $53,000
Year 3 $30,000, $44,000
Estimated salvage value: $15,000, $ 21,000
Use IRR and incremental analysis to determine which company to recommend, if any, given an MARR of 12% per year compounded annually. Note: Show the cash flow diagram and the NPW equation use your calculator or Excel to determine IRR.