Toy Manufacturers (TM) is considering two mutually exclusive machines to use in

Question

Toy Manufacturers (TM) is considering two mutually exclusive machines to use in its manufacturing process. The net cash flows for each are given below:
Year Axa Beta
0 -$90,000 -$105,000
1 45,000 35,000
2 45,000 35,000
3 45,000 35,000
4 35,000
5 35,000
If the cost of capital for TM is 13%, which machine should they purchase?

Beta: has the highest total net cash flows
Beta: it has the highest NPV
Axa: it has the highest NPV using infinite replacement
Beta: it has the highest NPV using infinite replacement

Explanation / Answer

machine A

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