Mars Corp.is choosing between two different capital investment proposals.Machine A has a useful life of 4 years, and Machine B has a useful life of 6 years.Each proposal requires an initial investment of $200,000, and the company desires a rate of return of 10%.Although Machine B has a useful life of 6 years, it could be sold at the end of 4 years for $35,000. ? $$\begin{array} { | c | c | }
\hline \text { Year } & \begin{array} { c }
\text { Present Value } \
\text { of } \$ 1 \text { at } 10 \%
\end{array} \
\hline 1 & 0.909 \
\hline 2 & 0.826 \
\hline 3 & 0.751 \
\hline 4 & 0.683 \
\hline 5 & 0.621 \
\hline 6 & 0.513 \
\hline
\end{array}$$ ?
Machine A will generate net cash flow of $70,000 in each of the four years.Machine B will generate $80,000 in year 1, $70,000 in year 2, $60,000 in year 3, and $40,000 per year for the remaining 3 years of its useful life.
Which of the following statements portrays the most accurate analysis between the two proposals?

Question

Mars Corp.is choosing between two different capital investment proposals.Machine A has a useful life of 4 years, and Machine B has a useful life of 6 years.Each proposal requires an initial investment of $200,000, and the company desires a rate of return of 10%.Although Machine B has a useful life of 6 years, it could be sold at the end of 4 years for $35,000. ? $$\begin{array} { | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Present Value } \
\text { of } \$ 1 \text { at } 10 \%
\end{array} \
\hline 1 & 0.909 \
\hline 2 & 0.826 \
\hline 3 & 0.751 \
\hline 4 & 0.683 \
\hline 5 & 0.621 \
\hline 6 & 0.513 \
\hline
\end{array}$$ ?
Machine A will generate net cash flow of $70,000 in each of the four years.Machine B will generate $80,000 in year 1, $70,000 in year 2, $60,000 in year 3, and $40,000 per year for the remaining 3 years of its useful life.
Which of the following statements portrays the most accurate analysis between the two proposals?

Quizplus · Accepted Answer

To determine the best investment, we calculate the Net Present Value (NPV) for both machines over their respective periods. For Machine A, the NPV over 4 years is calculated using the given cash flows and discount rates. For Machine B, we calculate the NPV over 4 years, including the sale price at the end of year 4. The NPV for Machine B after 4 years, considering its higher initial cash flows and the sale price, is likely to be higher than the NPV for Machine A, making Machine B the better investment after 4 years.

Mars CorpIs Choosing Between Two Different Capital Investment Proposals ? Machine a Will Generate Net Cash Flow of $70,000

Mars CorpIs Choosing Between Two Different Capital Investment Proposals ?
Machine a Will Generate Net Cash Flow of $70,000