P-2. One of your first assignments at the world famous Pez Candy Company located in Milford, Connecticut, is to evaluate two proposals for a new candy wrapping machine. Machine 1 will result in an annual cost savings (and therefore an increased profit) of $50,000. The machine costs $175,000. The useful life of machine 1 is 6 years. The cost of capital has been estimated to be 12%. Machine 2's cost is $200.232.60, however it's useful life is greater at 10 years and its cost of capital is slightly lower at 11%. The estimated cost savings for Machine 2 is $36,000 annually. You only need one machine. Using NPV analysis, what do you recommend and why?

P-2. One of your first assignments at the world famous Pez Candy Company located in Milford, Connecticut, is to evaluate two proposals for a new candy wrapping machine. Machine 1 will result in an annual cost savings (and therefore an increased profit) of $50,000. The machine costs $175,000. The useful life of machine 1 is 6 years. The cost of capital has been estimated to be 12%. Machine 2's cost is $200.232.60, however it's useful life is greater at 10 years and its cost of capital is slightly lower at 11%. The estimated cost savings for Machine 2 is $36,000 annually. You only need one machine. Using NPV analysis, what do you recommend and why?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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