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

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2.75K viewsOctober 19, 2016

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Darshita 6.14K October 19, 2016 0 Comments

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

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score 0 · Answer 1 · 2016-10-19T07:22:02+00:00

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

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