Mar Vista Molding Company is considering investing in new therrnokillian

Mar Vista Molding Company is considering investing in new therrnokillian

Mar Vista Molding Company is considering investing in new therrnokillian

Mar Vista Molding Company is considering investing in new therrnokillian equipment. It has two options: Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 3 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows:Option AOption BInitial cost$53,000$58,000Annual cash inflows$30,000$30,000Annual cash outflows$15,000$18,000Cost to rebuild (end of year 3)$12,000$ -0-Salvage valueS -0-510,000Estimated useful life6 years6 yearsThe company”s cost of capital is 8%.Instructions(a) Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option.(b) Which option should be accepted?

 

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