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The Markbreit Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product that Markbreit will need for
The Markbreit Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product that Markbreit will need for the next years. Machine X costs $ million but realizes aftertax inflows of $ million per year for years with each inflow recognized at the end of each year. After years, any version of Machine X must be replaced. Machine Y costs $ million and realizes aftertax inflows of $ million per year for years with each inflow recognized at the end of each year. Assume that both the machine prices are expected to rise by per year, due to inflation. The cost of capital is Which is the 'better' machine for this project? By how much would the value of the company increase today if it accepted the 'better' machine for this year project rather than if it accepted the 'worse' machine?
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