Calculate the NPV of each machine.Calculate the equivalent annual cash flow from each machine.

2.74K views
0
Machines A and B are mutually exclusive and are expected to produce the following real cash flows:

 

Cash Flows ($ thousands)
Machine C0 C1 C2 C3
A –107 +117 +128
B –127 +117 +128 +140

 

The real opportunity cost of capital is 12%. (Use PV table.)

 

a. Calculate the NPV of each machine. (Do not round intermediate calculations. Enter your answers in thousand rounded to the nearest whole number.)

 

Machine NPV
A $
B $

 

b. Calculate the equivalent annual cash flow from each machine. (Do not round intermediate calculations. Round “PV Factor” to 3 decimal places. Enter your answers in thousand rounded to the nearest whole number.)

 

Machine Cash flow
A $
B $

 

c. Which machine should you buy?
Machine A
0

A

Calculate the NPV of each machine. (Do not round intermediate calculations. Enter your answers in thousand rounded to the nearest whole number.)

Machine A Cash
Flow
PV Factor@12% NPV
C0 -107 1 -107
C1 117 0.892857143 104.4643
C2 128 0.797193878 102.0408
99.5051
Machine B Cash
Flow
PV Factor@12% NPV
C0 -127 1 -127
C1 117 0.892857143 104.4643
C2 128 0.797193878 102.0408
C3 140 0.711780248 99.64923
179.1543

B

Calculate the equivalent annual cash flow from each machine. (Do not round intermediate calculations.Round “PV Factor” to 3 decimal places. Enter your answers in thousand rounded to the nearest whole number.)

NPv of the project A 99.50510204
Life of Project A 2 year
EACF = C = r (NPV) / 1 – (1 + r)-n 58.8
NPv of the project B 179.1543367
Life of Project B 3 year
EACF = C = r (NPV) / 1 – (1 + r)-n 74.59

C

Which machine should you buy?

Answer : Company should by Machine B

Contact us today

Ask for our academic services

Copyright SmartStudyHelp 2016. All Rights Reserved