Answer:
Machine K
Explanation:
The values can be better computed as:
Year 0 1 2 3
J 11000 1200 1`300
K 13000 1200 1300 1400
Using the PV Calculator
The Present Value (PV) for each year in Machine J is as follows:
Cashflow Year Present Value
11000 0 11000
1200 1 1085.97
1300 2 1064.68
Total 13,150.65
The effective annual cost = [tex]\dfrac{NPV\times r}{1-(1+r)^{-n}}[/tex]
[tex]=\dfrac{13150.65 \times 0.1050}{1-(1+0.1050)^{-2}}[/tex]
= $7628.16
Using the PV Calculator
The Present Value (PV) for each year in Machine K is as follows:
Cashflow Year Present Value
13000 0 13000
1200 1 1085.97
1300 2 1064.68
1400 3 1037.63
Total 16,188.28
The effective annual cost = [tex]\dfrac{NPV\times r}{1-(1+r)^{-n}}[/tex]
[tex]=\dfrac{16188.28 \times 0.1050}{1-(1+0.1050)^{-3}}[/tex]
= $6566.92
Therefore, machine K is better to buy than machine J.
