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Maryanne Company Is Contemplating Acquiring One of the Following Machines

Question 145

Essay

Maryanne Company is contemplating acquiring one of the following machines:  Machine Y  Machine Z  Initial investment $180,000$225,000 Additional annual:  Revenues $90,000$150,000 Cash expenses $25,000$85,000 Terminal salvage value 00 Estimated useful life 5 years 5 years  Minimum desired rate  of return 14%14%\begin{array}{lrr}&\text { Machine Y }&\text { Machine Z }\\\text { Initial investment } & \$ 180,000 & \$ 225,000 \\\text { Additional annual: } \\\text { Revenues } \quad \$ 90,000 & \$ 150,000\\{\text { Cash expenses }} & \$ 25,000 & \$ 85,000 \\\text { Terminal salvage value } & -0- & -0- \\\text { Estimated useful life } & 5 \text { years } & 5 \text { years } \\\begin{array}{l}\text { Minimum desired rate } \\\text { of return }\end{array} & 14 \% & 14 \%\end{array} Assume straight-line depreciation and ignore income taxes.
Required:
Calculate the net-present value for both machines and choose the best alternative.

Correct Answer:

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