Question
Your company is considering three machines to stamp metal in its factory. Machine A costs $500,000, it has a life of four years, and it
Your company is considering three machines to stamp metal in its factory. Machine A costs $500,000, it has a life of four years, and it will generate after-tax cash flows of $190,000 each year. Machine B costs $300,000, it has a life of three years, and it will generate after-tax cash flows of $150,000 each year. Machine C costs $760,000, it has a life of six years, and it will generate after-tax cash flows of $210,000 each year. If your companys weighted average cost of capital is 13% per year, which machine should it chose? What is the annual benefit of the best machine?
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