Question
The Fernandez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product that the company will need
The Fernandez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product that the company will need for the next 8 years. Machine A costs $10 million but will provide after-tax inflows of $4 million per year for 4 years. If Machine A is replaced, its cost will be $12 million due to inflation and its cash inflows will increase to $4.2 million due to production efficiencies. Machine B costs $15 million and will provide after-tax inflows of $3.5 million per year for 8 years. If the WACC is 10%, which machine should Fernandez acquire?
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