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Question 3 Plasma I Ltd, makens Ox have the Ld makers of plasma televisions, is considering also making DVD players. They assist them in deciding whether Machine lie job adequately. They have called upon you ur Machine B should be purchased. Both machines are to be depreciated straight line own to a book value of zero over their entire useful life. Despite this, it is anticipated that Machine ives nea will be sold for $8,000 and Machine B for $12,000 at the end of their useful Details of each project's cash flows are tabulated below Cost Pre-Tax Net Annual Inflow (these cash flows occur at Machine A $450,000 $160,000 Machine B $624,000 $210,000 the end of the year) Machine Life 12 years 10 vears In addition to the cash flow information, you have also been pro details: vided with the following The corporate tax rate is 30%; ax is payable annually in arrears (ie tax is paid on profits one year after it is earned); .The e project is in an industry which is 15% less risky than the industry in which the firm . currently operates; Plasma Ltd currently has a beta of 1.7: The market risk premium is 10% pa; and. The expected return on the market is 18% pa. Given this information, which machine, if any, do you recommend Plasma Ltd purchase? In providing your answer, explain why you have made your recommendation. 7-18-10-8%pa. r 8+(0.85x1.7)(10) = 22.45% 1-(1.2245) 8000 030-1.2245) 2400 02245 1245 NPV-450,000+160, 160,000 0.2245 2245 (1.2245) = 60,5 10.96 1-(1.22451 3600 624,000 12 NP-624,000+210,000-(1.2245) 12,000 210,000 301 0.2245 1.2245 (1.2245) 12245) 210.000- $24000 030L-o 0.2245 (12245) = 72,638.56 Now, as the projects have different lives, we must calculate the EA of each