Woody Manufacturing Inc When Using Net Present Value Analysis,Woody Uses the Same Cost

question 97

Multiple Choice

Woody Manufacturing Inc.is considering the purchase of a new machine.They have narrowed their choices down to two machines,Machine #1 and Machine #2,each having a cost of $40 000.The following information is available regarding the expected cash inflows from each machine:
$$\begin{array} { c c c } \text { Year } & \text { Machine \#1 } & \text { Machine \#2 } \\\hline 1 & \$ 20000 & \$ 60000 \\2 & 20000 &0 \\3 & 20000 & 0 \\3 &20 000&0\end{array}$$
When using net present value analysis,Woody uses the same cost of capital for both machines and both machines have a positive net present value.
Based on the above information,which of the following statements is true?

• A) Machine #1 will have a higher net present value than Machine #2.
• B) Machine #1 will have a lower net present value than Machine #2.
• C) Machines #1 and #2 will have the same net present values.
• D) Machines #1 and #2 will have the same internal rates of return.

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