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Citrus Enterprises is upgrading its fruit washing/separating machine. Citrus Enterprises has narrowed the decision down...

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Question

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:

  1. Calculate the net present value of Machine A.
  2. Calculate the net present value of Machine B.
  3. Using the net present value method, which machine should the company select if it can select only one investment?

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