Saxon Manufacturing Is Considering Purchasing Two Machines

question 9

Multiple Choice

Saxon Manufacturing is considering purchasing two machines. Each machine costs $9,000 and will produce cash flows as follows: Saxon 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 Saxon 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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Definitions:

Store Managers

Individuals responsible for overseeing the daily operations of a store, including staff management, inventory control, and customer service.

Publishers

Companies or individuals that prepare and issue books, journals, music, or other works for sale.

Household Chores

Routine tasks and activities performed in managing a home, such as cleaning, cooking, and maintenance.

Incompatibility

The state of being unable to coexist in harmony due to differences in behaviors, beliefs, or systems.