Question
Suppose that Timeas Bakery is considering purchasing one of two machines. Machine A, a dough mixing machine, has a useful life of 7 years, and
Suppose that Timeas Bakery is considering purchasing one of two machines. Machine A, a dough mixing machine, has a useful life of 7 years, and will enable Timea to achieve cost savings which she calculated to have a NPV $2.5 million. Machine B is a small delivery van, that has the life expectancy of 4.5 years. This represents a savings with a NPV of $1.85 million. The bakery has a cost of capital of 7.25%. Using the Equivalent Annual Annuity to figure out which machine should Timea invest in? Why is this method useful, explain in 1-2 sentences? Show work!
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