Citrus Enterprises is upgrading its fruit washing/separating machine. Citrus Enterprises has narrowed the decision down...
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Accounting
Citrus Enterprises is upgrading its fruit washing/separating machine. Citrus Enterprises has narrowed the decision down to two machines: Machine A and Machine B. Pertinent information about each machine includes: (8 Marks)
Machine A Machine B
Investment $450,000 $650,000
Useful life (years) 10 10
Estimated annual net cash inflows for useful life $75,000 $120,000
Residual value $30,000 $30,000
Depreciation method straight-line straight-line
Required rate of return 10% 12%
Present Value of $1
Periods
10%
12%
9
0.424
0.361
10
0.386
0.322
11
0.350
0.287
Present Value of Annuity of $1
Periods
10%
12%
9
5.759
5.328
10
6.145
5.650
11
6.495
5.938
Required:
Calculate the net present value of Machine A.
Calculate the net present value of Machine B.
Using the net present value method, which machine should the company select if it can select only one investment?
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