Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Johnson Jets is considering two mutually exclusive machines. Machine A has an up-front cost of $100,000 (CF0 = -100,000), and produces positive after-tax cash inflows

Johnson Jets is considering two mutually exclusive machines. Machine A has an up-front cost of $100,000 (CF0 = -100,000), and produces positive after-tax cash inflows of $40,000 a year at the end of each of the next six years. Machine B has an up-front cost of $50,000 (CF0 = -50,000), and produces after-tax cash inflows of $30,000 each year at the end of the next three years. After three years, machine B can be replaced at a cost of $55,000 paid at t = 3). The replacement machine will produce after-tax cash inflows of $32,000 a year for three years (inflows receive at t = 4, 5, 6). The company's cost of capital is 10.5%. What is the net present value (NPV) on a six-year extended basis of the most profitable machine? Calculate NPV for each scenario. Indicate which is the more profitable venture.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Finance For Dummies

Authors: Ayse Evrensel

1st Edition

111852389X, 978-1118523896

More Books

Students also viewed these Finance questions