Question
Walmart is considering a purchase of a cost-cutting technology for its existing operations. COO narrowed her search to two options: a)technology X can be purchased
Walmart is considering a purchase of a cost-cutting technology for its existing operations. COO narrowed her search to two options: a)technology X can be purchased for $200,000 and can be used for the next 6 years producing net additions of $60,000/year to existing Walmart's FCG; b) technology Y can be purchased for $350,000, but it has useful life of 12 years and can generate extra FCG of $63,000/year. Both technologies will have zero residual values at the end of their respective useful lives. Walmart's WACC is 6%. Which projects would you recommend investing into a) assuming X can be replicated on similar terms; b) assuming X can be replicated on approved terms (in 6 years it will cost cheaper at $140,000).
Please show all math.
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