Question
Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine A which has a cost
Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine A which has a cost of $208,000.00, a 5-year expected life, and after-tax cash flows (labor savings and depreciation) of $75,000.00 per year; and Machine B, which has a cost of $416,000.00, a 10-year life, and after-tax cash flows of $92,000.00 per year. Knitting machine prices are not expected to rise, because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins's cost of capital is 14.0%. What is the equivalent annual annuity for Machine B?
$13,233 | ||
$33,016 | ||
$45,090 | ||
$12,247 | ||
$14,308 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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