Mars CorpIs Choosing Between Two Different Capital Investment Proposals

question 99

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.

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:

Negotiate

The process of discussing to reach an agreement or compromise between parties with different needs or perspectives.

Theory X

A management theory suggesting that employees are inherently lazy and require close supervision and control to be productive.

Work Breaks

Scheduled or unscheduled periods during work hours when employees are allowed to rest, eat, or attend to personal matters.

Theory Y

A management theory suggesting that employees are naturally motivated, responsible, and self-directed, requiring participative management styles for optimal performance.