Answered step by step
Verified Expert Solution
Question
1 Approved Answer
2. The company is choosing between machine A and B (they are mutually exclusive and the company can only pick one). The initial cost of
2. The company is choosing between machine A and B (they are mutually exclusive and the company can only pick one). The initial cost of machine A is $1,000,000 and it will last for 4 years before it needs to be replaced. The cost of operating machine A each year is $100,000. The initial cost of Machine B is $1,500,000 and it will last for 6 years before it needs to be replaced. The cost of operating machine B is $50,000 in cash flow per year. If the required rate of return is 9%, (a) Calculate the 6 year and 4 year annuity factors at 9% annual interest. (b) Using the annuity factors, find the PV of Machine A and Machine B including all costs (initial + operating). (c) Which machine is a better choice for the company after considering the different lives of the projects? (Note: be sure to use the equivalent annual annuity method)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started