Question
A corporation needs to purchase a machine to operate their plant for the next 10 years and faces a 12% cost of capital. Machine A
A corporation needs to purchase a machine to operate their plant for the next 10 years and faces a 12% cost of capital. Machine A has an expected life of 5 years, will cost $100 million up front, and will produce net cash flows of $30 million at the end of each year. Machine B has an expected life of 10 years, will cost $132 million up front, and will produce net cash flows of $25 million at the end of each year. How much will the value of the company increase if it accepts the better machine? In other words, what is the NPV of the better machine over a 10-year horizon? Please answer in millions of dollars
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