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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 aftertax inflows of $ million per year for years. After years, the machine must be replaced. Machine B costs $ million and realizes aftertax 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? Enter your answer in millions. For example, an answer of $ million should be entered as not Do not round intermediate calculations. Round your answer to two decimal places.
$
million
What is the equivalent annual annuity for each machine? Enter your answers in millions. For example, an answer of $ million should be entered as not Do not round intermediate calculations. Round your answers to two decimal places.
Machine A: $
million
Machine B: $
million
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