Turk Manufacturing is considering purchasing two machines. Each machine costs $9,000 and will produce cash flows as follows:
End of Year Machine A Machine B
1 $ 5,000 $ 1,000
2 4,000 2,000
3 2,000 11,000
Turk 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 Turk purchase?
A) Both machines are acceptable, but B should be selected because it has the greater net present value.
B) Only Machine A is acceptable.
C) Both machines are acceptable, but A should be selected because it has the greater net present value.
D) Neither machine is acceptable.
E) Only Machine B is acceptable.
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