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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 16 years. Machine X costs $25 million but realizes after-tax inflows of $8 million per year for 8 years with each inflow recognized at the end of each year. After 8 years, any version of Machine X must be replaced. Machine Y costs $46 million and realizes after-tax inflows of $10 million per year for 16 years with each inflow recognized at the end of each year. Assume that (both) the machine prices are expected to rise by 3%, per year, due to inflation. The cost of capital is 10%. 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 16-year project rather than if it accepted the 'worse' machine? (9)
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