Holder Manufacturing Is Considering Purchasing Two Machines Holder Manufacturing Uses the Net Present Value Method to Make

question 37

Multiple Choice

Holder Manufacturing is considering purchasing two machines.Each machine costs $8,000 and will produce cash flows as follows:
$$\begin{array} { c c } \begin{array}{l}\text {End of}\\ \text {Year}\\1\\2\\3\end{array}\begin{array} { }& \text { Machine } \\&\begin{array} { }&\text { A } & \text { B } \\&\$ 5,000 & \$ 1,000 \\&4,000 & 2,000 \\&2,000 & 11,000\end{array}\end{array}\end{array}$$
Holder Manufacturing uses the net present value method to make the decision,and it requires a 15% annual return on its investments.The present value factors of 1 at 15% are: 1 year,0.8696; 2 years,0.7561; 3 years,0.6575.Which machine should Holder purchase?

• A) Only Machine A is acceptable.
• B) Only Machine B is acceptable.
• C) Both machines are acceptable, but A should be selected because it has the greater net present value.
• D) Both machines are acceptable, but B should be selected because it has the greater net present value.
• E) Neither machine is acceptable.

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