Question
Machines A, B, C, and D are mutually exclusive are expected to produce real cash flows with the real opportunity cost of capital is 12%.
Machines A, B, C, and D are mutually exclusive are expected to produce real cash flows with the real opportunity cost of capital is 12%.
Machine A
Year 0 = -$1,000
Year 1 = $1,100
Year 2 = $1,210
Machine B
Year 0 = -$1,200
Year 1 = $1,100
Year 2 = $1,210
Year 3 = $1,330
Machine 4
Year 0 = -$5000
Year 1 = $0
Year 2 = $500
Year 3 = $1,000
Year 4 = $2,000
Year 5 = $3,000
Machine D
Year 0 = -$6,000
Year 1 = $500
Year 2 = $1,000
Year 3 = $2,000
Year 4 = $3,000
Year 5 = $4,000
a. Calculate the NPV of each machine
b. Calculate the equivalent annual cash flows for each machine
c. As the machines are mutually exclusive, which machine should you buy?
d. If the machines are independent, which machine(s) should you buy?
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