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Answer (A) is correct . The NPV of both machines must be calculated and compared to determine which will yield a better return of cash flows. Machine A is calculated as one lump sum payable in 4 years minus the initial investment cost. ? NPV = ($60,000 × .73503) – $30,000 = $44,102 – $30,000 = $14,102 The NPV of Machine B is calculated as the present value of an ordinary annuity of $13,000 for 4 years, minus the initial investment cost. NPV = ($13,000 × 3.31213) – $30,000 = $43,058 – $30,000 = $13,058 By comparing the NPV of both machines, Cliff would choose Machine A because NPV of A > NPV of B by $1,044.

Answer (B) is incorrect because Machine A is a better choice.
Answer (C) is incorrect because The difference is $1,044.
Answer (D) is incorrect because Machine A has the higher NPV.