Phoenix Products Inc.requires a new machine to produce a part for a solar air conditioner.Two companies have submitted bids, and you have been assigned the task of choosing one of the machines.Cash flow analysis indicates the following: If the required rate of return for Phoenix Products is 5 percent, which of the following is the most valid statement?

Question

Phoenix Products Inc.requires a new machine to produce a part for a solar air conditioner.Two companies have submitted bids, and you have been assigned the task of choosing one of the machines.Cash flow analysis indicates the following:  If the required rate of return for Phoenix Products is 5 percent, which of the following is the most valid statement?

Quizplus · Accepted Answer

To determine the best choice, we need to compare the net present value (NPV) for each machine. The NPV for Machine A is $15,790, while the NPV for Machine B is $17,232. Since the required rate of return for Phoenix Products is 5%, Machine B has the higher NPV and would be the better choice. Option B correctly states that "NPV_A > NPV_B, therefore accept Machine A" is not valid. Option C and D compare internal rates of return (IRR), but NPV is a better tool for this scenario. And option E is not applicable as we do have valid options to choose from.