CASE : (Project Evaluation)
Eureka Manufacturing Ltd has to replace one of its major bottling machines. It is considering two alternative machines. The first available machine is made in Japan and is relatively less costly. The second available machine is made in Germany, is very high-tech but quite costly. However, its expected cost savings is also very high. Both machines come with the same length of manufacturer’s warranty. They will occupy the same amount of space in the factory. The company can only buy one machine this year, but it will not buy both. The net cost savings associated with each machine appear below. The firm discounts any investment project’s cash flows at 15%.
|Year||Japanese Machine||German Machine|
HINT: Profitability Index = Present value of all cash inflows / Initial Investment