Question
The Indian subsidiary of BDC, a US multinational, has the opportunity to invest in one of two mutually exclusive machines. Both machines can produce the
The Indian subsidiary of BDC, a US multinational, has the opportunity to invest in one of two mutually exclusive machines. Both machines can produce the same product for the Indian market. Machine A has a life of 9 years, costs 120 million Indian Rupees (IRP) and will produce after-tax inflows of 2.5 million IRP per year at the end of each year. Machine B has a life of 7 years, costs 150 million and will produce after-tax inflows of 3.5 million IRP per year at the end of each year. Assuming the machines can be replaced indefinitely at constant prices, which machine should BCD choose? Assume a cost of capital of 12%. The current spot rate is 0.013 US$/IRP.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started