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Wisconsin Dairy Co. is currently making its capital budgeting decisions for the upcoming year. Among the projects they are considering are two machines: Machine W

  1. Wisconsin Dairy Co. is currently making its capital budgeting decisions for the upcoming year. Among the projects they are considering are two machines: Machine W and Machine WW. Machine W costs $500,000 but will produce expected after-tax cash inflows of $300,000 at the end of each of the next 2 years. Machine WW also costs $500,000 but will produce expected after –tax cash inflows of $165,000 at the end of each of the next 3 years. Both projects have a 10% cost of capital.

 Assume that these are mutually exclusive projects that can be repeated indefinitely overtime with the same expected cash flows. Which project should the company accept? [8

b.Using the table above, calculate is the crossover rate % [4]

Define NPV Profile

EXPECTED NET CASH FLOWS

Year
Project X
Project Y
0
($10,000)
($10,000)
1
6,500
3,500
2
3,000
3,500
3
3,000
3,500
4
1,000
3,500



 

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