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

question 92

Multiple Choice

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?

• A) Mars should invest in Machine A because the net present value of Machine A after 4 years is higher than the net present value of Machine B after 4 years.
• B) Mars should invest in Machine B because the net present value of Machine A after 4 years is lower and the net present value of Machine B after 6 years.
• C) Mars should invest in Machine B because the net present value of Machine A after 4 years is lower than the net present value of Machine B after 4 years.
• D) Mars should invest in Machine A because the net present value of Machine A after 4 years is higher than the net present value of Machine B after 6 years.

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Definitions:

Pay Inequities

Disparities in compensation among employees that are not based on job performance or qualifications.

Conditions

Specific requirements, provisions, or circumstances that affect an agreement, process, or functioning of a system.

Job Evaluation Method

A systematic process used to assess the relative worth of jobs within an organization for the purpose of establishing equitable salary levels and pay scales.

Benchmark Jobs

Positions that are common across industries, used to make comparisons for purposes of salary surveys and establishing pay scales.