Question
Discover Inc. wants to change their equipment to buy a more energy efficient one. They have two machines that they can choose one from, Machine
Discover Inc. wants to change their equipment to buy a more energy efficient one. They have two machines that they can choose one from, Machine A and Machine B. For both, you have to scrap them after their lifespan is over.
Machine A: Upfront cost = 50,000, annual net cash flow = 14,000, lifespan = 7 years, scrap value = 0.
Machine B: Upfront cost = 50,000, annual net cash flow = 20,000, lifespan = 4 years, scrap value = 5,000.
Cost of Capital is 10%.
Which Machine should they buy if it is just a one-time initiative?
Which Machine should they buy if it is a recurring situation?
What is the NPV of Machine A?
What is the NPV of Machine B?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
For a onetime initiative the machine that should be chosen is the one with the highest net present v...
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Fundamentals of Financial Management
Authors: Eugene F. Brigham, Joel F. Houston
14th edition
1285867971, 978-1305480742, 1305480740, 978-0357686393, 978-1285867977
