Basic Interest and Present/Future Worth Problem 1 (10 points) The Mailing Depart
ID: 1111239 • Letter: B
Question
Basic Interest and Present/Future Worth
Problem 1 (10 points)
The Mailing Department at the College wants to by a new stamping machine and two companies have been found that make an appropriate product: Acme Stampers and Better Stampers. The Acme Stamper machine has a life of 3 years, and the Better Stamper machine has a life of 4 years. Given the following information, which one should be chosen.
Acme Stamper Company Better Stamper Company Initial Cost $2,500 $1,500 Annual Benefit $800 $600 Scrap Value $400 $300 Maintenance Costs None $500 after 2 yearsExplanation / Answer
By computing the NPV and IRR using excel at 5% interest rate, it is better to opt the Acme Stamper Company as its NPV and IRR are greater than Better Stamper Company.
Years Acme Stamper Company Better Stamper Company 0 -2500 -1500 1 800 600 2 800 100 3 1200 600 4 400 NPV $24.13 $9.52 IRR 5.48% 5.28%