Mountain Fresh Water Company is considering two mutually exclusive machines. Machine A has an up-front cost of $130,000 (CF0= –130,000), and it produces positive after-tax cash inflows of $50,000 a year at the end of each of the next 6 years. Machine B has an up-front cost of $70,000(CF0= –70,000), and it produces after-tax cash inflows of $40,000 a year at the end of the next 3 years. The company’s cost of capital is 11%. Based on the equivalent annual annuity, which machine will be chosen?
◦ A for $11,355.09
◦ A for $19,271.05
◦ B for $11,355.09
◦ B for $19,271.05