Berry Products is considering two pieces of machinery. The first machine costs P50,000 more than the second machine. During the two-year life of these two alternatives, the first machine has P155,000 more cash flow in year one and a P110,000 less cash flow in year two than the second machine. All cash flows occur at year-end. The present value of 1 at 15% end of 1 period and 2 periods are 0.86957 and 0.75614, respectively. The present value of 1 at 8% end of period 1 is 0.92593 and period 2 is 0.85734. At what discount rate would Machine 1 equally acceptable as machine 2?

Berry Products is considering two pieces of machinery. The first machine costs P50,000 more than the second machine. During the two-year life of these two alternatives, the first machine has P155,000 more cash flow in year one and a P110,000 less cash flow in year two than the second machine. All cash flows occur at year-end. The present value of 1 at 15% end of 1 period and 2 periods are 0.86957 and 0.75614, respectively. The present value of 1 at 8% end of period 1 is 0.92593 and period 2 is 0.85734. At what discount rate would Machine 1 equally acceptable as machine 2?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 22E

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