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Allied is analyzing two new machines that will upgrade its old machine for its health- food product, i.e., these two new machines are mutually exclusive.
Allied is analyzing two new machines that will upgrade its old machine for its health- food product, i.e., these two new machines are mutually exclusive. Machine A can be used for 6 years, and Machine B can be used for 3 years. The health-food product is very successful, and therefore the machine will be repurchased at the end of its useful life. Below is the timeline for each machine. Please, use Replacement Chain Adjustment to deal with the unequal lives issues. What would be your choice between these two machines, after adjusting for the unequal lives? Why? Machine A: Period 0 1 2 3 4 5 6 Time Line: ($5,000) $1,400 $1,400 $1,400 $1,400 $1,400 $1,400 Machine B: Years 0 1 2 3 Time Line: ($3,500) $1,700 $1,700 $1,700 Part II. Replacement Chain Adjustment WACC = 10% Machine A: Period 0 1 2 3 4 5 6 Time Line: ($5,000) $1,400 $1,400 $1,400 $1,400 $1,400 $1,400 NPVA = Machine B: 0 1 2 3 4 5 6 Time Line: NPVB = What would be your choice between these two machines? Why
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