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

question 57

Multiple Choice

Holder Manufacturing is considering purchasing two machines. Each machine costs $8,000 and will produce cash flows as follows:
$\begin{array}{rrr}\text { End of } & \text { Machine }\\\text { Year } &A&B\\1 & \$ 5,000 & \$ 1,000 \\2 & 4,000 & 2,000 \\3 & 2,000 & 11,000\end{array}$
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.