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Mountain Fresh Water Company is considering two mutually exclusive machines. Machine A has an up-front cost of $100,000 (CF0 = 100,000), and it produces positive
Mountain Fresh Water Company is considering two mutually exclusive machines. Machine A has an up-front cost of $100,000 (CF0 = 100,000), and it 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 it produces after-tax cash inflows of $30,000 a year at the end of the next three years. The companys cost of capital is 10.5%. Based on the equivalent annual annuity, which machine will be chosen?
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