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 $11 million but realizes after-tax inflows of $5 million per year for 4 years. After 4 years, the machine must be replaced. Machine B costs $13 million and realizes after-tax inflows of $3.5 million per year for 8 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 14%.

1. 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 $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. $ million

• What is the equivalent annual annuity for each machine? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to two decimal places.

  Machine A

  $ million

  Machine B

  $ million

  Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $225,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $95,000 per year; and Machine 360-6, which has a cost of $375,000, a 6-year life, and after-tax cash flows of $104,500 per year. Knitting machine prices are not expected to rise, because inflation will be offset by cheaper components (microprocessors) used in the machines.

  Assume that Filkins' cost of capital is 10%. Calculate the two projects' NPVs. Round your answers to the nearest cent. Machine 190-3 $ Machine 360-6 $ Should the firm replace its old knitting machine, and, if so, which new machine should it use? -Select-Yes. Machine 190-3Yes. Machine 360-6NoItem 3

  By how much would the value of the company increase if it accepted the better machine? Round your answer to the nearest cent. $

  What is the equivalent annual annuity for each machine? Round your answer to the nearest cent.

  Machine 190-3	$
  Machine 360-6	$