Please Show all work for the 2 Questions A company is purchasing a new milling m

Question

Please Show all work for the 2 Questions

A company is purchasing a new milling machine. Management has narrowed the choices to two alternatives that offer comparable performances and considerable savings over their present system. The minimum attractive rate of return is 10%. Create a cash-flow table. Based on NPW which alternative is the best choice and why? Alternative A, since RORA > RORB Alternative B, since RORB > RORA Alternative A, since Delta IRR MARR Brad spends $5 per Lottery drawing and there are 2 drawings per week. How much money would Brad have at the end of 45 years if he invested his money (instead of purchasing lottery tickets) in an account that paid 12% compounded monthly?

Explanation / Answer

1)

for machine A ...

net annual profit = 9000 - 3500 = 5500


NPV of the machine = - 20000 + Present value of the anuity of 5500 for 5 years at 10 % per year + present value of $ 2000 i.e. 2000 discounted for 5 years
= - 20000 + ( PMT = 0 , FV = -2000 , NPER = 5 , R = 10 % , CPT --> PV )   +   ( PMT = -5500 , NPER = 5 , R = 10 % , CPT --> PV )
= -20000 + 1241.843 + 33,795.12


= $ 15036.963

IRR of A = 25%



for machine B ...

net annual profit = 12000 - 4500 = 7500


NPV of the machine = - 30000 + Present value of the anuity of 7500 for 5 years at 10 % per year + present value of $ 5000 i.e. 5000 discounted for 5 years
= - 30000 + ( PMT = 0 , FV = -5000 , NPER = 5 , R = 10 % , CPT --> PV )   +   ( PMT = -7500 , NPER = 5 , R = 10 % , CPT --> PV )
= -30000 + 3104.6066 + 46,084.25

= $ 19188.8566


IRR of B = 22%



so option D is correct



2)
amount invested in one month = 4*2*5 = $ 40

so FV = ( PMT = -40, R = 1% , NPER = (45*12) , CPT---> FV )
= $ 8,58,187.72

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