(Ignore income taxes in this problem.)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:
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

(Ignore income taxes in this problem.)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:
 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

11ea7761_15ba_ad58_81a5_ff271d4760cf_TB2580_00 11ea7761_15ba_d469_81a5_4f3592d8e642_TB2580_00 Viscera is the least costly alternative.
The difference in net present value = $(29,634) - $(31,196) = $1,562

(Ignore Income Taxes in This Problem