FINANCE

A dairy company is deciding on its capital budget for the upcoming year. Among the projects being considered are two machines, A and B. Machine A costs R50 000 and will produce expected after-tax cash flows of R30 000 during the next two years. Machine B also costs R50 000, but it will produce after-tax cash flows of R16500 during the next 4 years. Project A has WACC 11% WACC and project B has a 10% WACC. 2.4. Assume that the projects are mutually exclusive and can be repeated indefinitely. i. Now use the equivalent annual annuity method to determine the annuity of the projects. (4) ii. Assuming infinite life for the two projects, calculate the NPV of the projects. iii. Which projects which is selected and why? (3) 2.5. Could a replacement chain analysis be modified for use where the project's cash flows are different each time it is repeated? Explain