Question
Machine A: This project costs $10 million. The expected net cash flows are $4 million per year for 4 years, when is to be replaced.
Machine A: This project costs $10 million. The expected net cash flows are $4 million per year for 4 years, when is to be replaced.
Machine B: It costs $15 million, and has expected cash flows of $3.5 per year for 8 years, when it will be replaced.
The cost of capital is 10%. Machine prices are expected to stay steady as production efficiencies are expected to offset inflation. Evaluate these projects.
a. Calculate NPV, IRR, Replacement Chain, and Equivalent Annual Annuity.
b. Which project should be company accept?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To evaluate the projects and determine which one the company should accept we will calculate the Net Present Value NPV Internal Rate of Return IRR Rep...
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Step: 2
Step: 3
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Intermediate Financial Management
Authors: Eugene F. Brigham, Phillip R. Daves
11th edition
978-1111530266
