Q5. Mega Printers Incorporated is evaluating some new technology options. Option A costs $16 million initially, has an annual operating cost of $320,000, and a life of 10 years before it is replaced. Option B costs $14 million initially, has an annual operating cost of $450,000, and a life of 8 years before it is replaced. What is the equivalent annual cost for each machine, if the required return is 11%? Ignore taxes. The VP of operations is emphatic that the decision should be made based on the annual operating costs, only, saying that present value calculations will complicate this relatively simple decision unecessarily, and should be avoided. According to the VP, Option A is the best choice. Which option should the company purchase? Discuss."

6. Merving Shipbuilders has a cost of equity of 9.27%, a pre-tax cost of debt of 3.26%, and a tax rate of 21%. The D/E ratio is .6. What is the company's WACC? Merving builds research ships for the Canadian Government. The company is considering using its current WACC as a discount rate, to analyze a bid on an upcoming military submarine contract. Discuss.