Chapter 10 The Basics of Carl Budgeting Evaluating Cash Flows Graph the NPV profiles for Plan A. Plan B, and Project d. Give a logical explanation based on reinvestment rates and opportunity costs, as to why the NPV method is better than the IRR method when the firm's cost of capital is constant at some value such as 10 10-16 Seacraft Carriers is considering two alternative cargo ships. Ship A has an expected life of 2 years will cost $60 million, and will produce net cash flows of $17 million per year. Ship Bhas a life of 14 years, will cost $75 million, and will produce net cash flows of 515 million per year. Seacraft plans to serve the route for 14 years. Inflation in operating costs, Ship costs and cargo rates is expected to be zero, and the company's cost of capital is 12%. What is the equivalent annual annuity for each ship? Which ship should be accepted? 10-17 Contec Systems has the opportunity to invest in one of two mutually exclusive machines Unguole that will produce a product it will need for the foreseeable future. Machine A costs $2.5 million and realizes after-tax inflows of $900,000 per year for years. Machine B costs 534 million and realizes after-tax inflows of $800,000 per year for 9 years. Assume that machine prices are not expected to rise because inflation will be offset by cheaper components used in the machines. The cost of capital is 125. What is the equivalent annual annuity for each machine? Which machine should be chosen? 10-18 in Fabric Company is considering the replacement of its old, fully deprecated knitting machine Two new models are available: Machine 190-3, which has a cost of $190,000, repected life and after-tax cash flows of $87,000 per year and Machine 30-0, which cost of $300.000, 6-vear life, and after-tax cash flows of 98.300 per year. Ing Price are not expected to rise, because inflation will be set by the per compon microproces used in the machines. Assume that Filkins cost of that is 14 the firm replace its old knitting machine, and, if so, which new machthe should I we? What is the equivalent annual annuity for each machine? Ch 1 0 The Basics of Capitol Budgering Evaluating Cash Flow 10-16 10-17 Graph the NPV protiles for Plan A. Plan B, and Project d. Give a logical explanation based on reinvestment rates and opportunity costs, as to why the NP method is better than the IRR method when the firm's cost of capital is constant at some value such as 10% Seacraft Carriers is considering two alternative cargo ships. Ship A has an expected life of 7 years will cost 560 million, and will produce net cash flows of $17 million per year. Ship B has a life of 14 years, will cost 575 million, and will produce net cash flows of 515 million per year. Seacraft plans to serve the route for 14 years. Inflation in operating costs, ship costs and cargo rates is expected to be zero, and the company's cost of capital is 125. What is the equivalent annual annuity for each ship? Which ship should be corpted? Contec Systems has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $2.5 million and realizes after-tax inflows of $900,000 per year for 5 years. Machine B costs million and realizes after-tax inflows of $800.000 per year for 9 years. Assume that machine prices are not expected to rise because inflation will be ofset by cheaper components used in the machines. The cost of capital is 125. What is the equivalent annual annuity for each machine? Which machine should be chosen? Fulkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $190,000, a 3-year expected life, and after-tax cash flows of 587 000 per year; and Machine 360-6, which has a cost of 5360.000, a -year life, and after-tax cash flows of 596.300 per year. Knitting machine prices are not expected to rise, because inflation will be offset by cheaper compon- ents microprocessors) used in the machines. Assume that Filkins's cost of capital is 14 Should the firm replace its old knitting machine, and, if so, which new machine should use? What is the equivalent annual annuity for each machine h it should sen a strip mine, the net.co 10-18