Cannula Vending Corporation is expanding operations and needs to purchase additional vending machines. There are currently two companies, Viscera, Inc. and Gullet International, that produce and sell machines that will do the job. Information related to the specifications of each company's machine are as follows (Ignore income taxes.): Use Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided.
Cannula's discount rate is 18%. Cannula uses the straight-line method of depreciation. Using net present value analysis, which company's machine should Cannula purchase and what is the approximate difference between the net present values of the competing company's machines?

Question

Cannula Vending Corporation is expanding operations and needs to purchase additional vending machines. There are currently two companies, Viscera, Inc. and Gullet International, that produce and sell machines that will do the job. Information related to the specifications of each company's machine are as follows (Ignore income taxes.):  Use Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided.
Cannula's discount rate is 18%. Cannula uses the straight-line method of depreciation. Using net present value analysis, which company's machine should Cannula purchase and what is the approximate difference between the net present values of the competing company's machines?

Quizplus · Accepted Answer

11eacbfc_c61a_4961_8ffe_33bd848a0206_TB7552_00 11eacbfc_c61a_4962_8ffe_55cccf4862c7_TB7552_00 Viscera is the least costly alternative.
The difference in net present value = $(29,634) − $(31,196) = $1,562

Cannula Vending Corporation Is Expanding Operations and Needs to Purchase