For two mutually exclusive machines which machine will you s

For two mutually exclusive machines, which machine will you select if the MARR is 12% based on the concept of IRR?

Machine A

Machine B

Both need to be rejected.

Both are equally good.

Years	CF for Machine A	CF for Machine B
0	$           (120,000)	$           (148,000)
1	$               32,000	$               46,000
2	$               35,000	$               49,000
3	$               38,000	$               52,000
4	$               41,000	$               52,000
5	$               44,000	$             (52,000)
6	$             (24,000)	$               55,000
7	$               47,000	$               55,000
8	$             (21,000)	$             (21,000)

Solution

Answer Machine B Can be selected as it is giving more NPV Explanation Year Discount factor at 12% Machine A Discounted Cash flows Machine B Discounted Cash flows 0 1.00000    (120,000)      (120,000)         (148,000)      (148,000) 1 0.89286         32,000           28,572              46,000           41,072 2 0.79719         35,000           27,902              49,000           39,062 3 0.71178         38,000           27,048              52,000           37,013 4 0.63552         41,000           26,056              52,000           33,047 5 0.56743         44,000           24,967           (52,000)        (29,506) 6 0.50663       (24,000)        (12,159)              55,000           27,865 7 0.45235         47,000           21,260              55,000           24,879 8 0.40388       (21,000)           (8,481)           (21,000)           (8,481) Net present value           15,164           16,950