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The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the
The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $
million but realizes after
tax inflows of $
million per year for
years After
years the machine must be replaced. Machine B costs $
million and realizes after
tax inflows of $
million per year for
years after which it must be replaced. Assume that machine prices are not expected to rise because inflation will be offset by cheaper components used in the machines. The cost of capital is
Using the replacement chain approach to project analysis, by how much would the value of the company increase if it accepted the better machine? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $
million should be entered as
not
Round your answer to two decimal places.
$
million
What is the equivalent annual annuity for each machine? Do not round intermediate calculations. Enter your answers in millions. For example, an answer of $
million should be entered as
not
Round your answers to two decimal places.
Machine A: $
million
Machine B: $
million
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