Use the information below to answer the following question(s).
Wet Water Company drills residential and commercial wells. The company is in the process of analyzing the purchase of a new drill. Information on the proposal is provided below:
Note: Other than the initial investment, cash flows are end of period.
-Use the following information to determine which machine to purchase based on net present value. Cost of capital is 10 percent.
A) purchase machine 3
B) purchase machine 2
C) purchase machine 1
D) purchase any of the three machines
E) purchase all three machines

Question

Use the information below to answer the following question(s).
Wet Water Company drills residential and commercial wells. The company is in the process of analyzing the purchase of a new drill. Information on the proposal is provided below:
  Note: Other than the initial investment, cash flows are end of period.
-Use the following information to determine which machine to purchase based on net present value.  Cost of capital is 10 percent.
A) purchase machine 3 
B) purchase machine 2 
C) purchase machine 1 
D) purchase any of the three machines 
E) purchase all three machines

Quizplus · Accepted Answer

Based on the net present value calculation, machine 3 has the highest value ($15,737.57) compared to machine 2 ($13,082.09) and machine 1 ($9,694.32) when the cost of capital is 10 percent. Therefore, the best choice is to purchase machine 3.

Use the Information Below to Answer the Following Question(s)