The Fernandez Company has an opportunity to invest in one of two mutually exclusive machines that will

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The Fernandez Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next 8 years. Machine A costs $10 million but will provide after-tax inflows of $4 million per year for 4 years. If Machine A was replaced, its cost would be $12 million due to inflation and its cash inflows would increase to $4.2 million due to production efficiencies. Machine B costs $15 million and will provide after-tax inflows of $3.5 million per year for 8 years. If the WACC is 10%, which machine should be acquired? Explain.
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Fundamentals of Financial Management

ISBN: 978-0324597707

12th edition

Authors: Eugene F. Brigham, Joel F. Houston

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