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Philly Company Wants to Buy a New Machine and Has

Question 37

Multiple Choice

Philly Company wants to buy a new machine and has narrowed its options to two choices.Both machines cost $160,000.The following data shows the expected cash inflows from each machine:
 Year  Machine 1  Machine 2 1$80,000$240,000280,0000380,0000\begin{array} { c c c } \text { Year } & \text { Machine 1 } & \text { Machine 2 } \\\hline 1 & \$ 80,000 & \$ 240,000 \\2 & 80,000 & 0 \\3 & 80,000 & 0\end{array}
When calculating net present value,Philly uses the same cost of capital for both machines and both machines have a positive net present value.
Based on this information,which statement is true?


A) Machine 1 and Machine 2 will have the same internal rates of return.
B) Machine 1 and Machine 2 will have the same net present values.
C) Machine 1 will have a lower net present value than Machine 2.
D) Machine 1 will have a higher net present value than Machine 2.
E) None of the answer choices is correct.

Correct Answer:

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