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Author Question: Mills Corp. is considering two mutually exclusive machines. Machine A requires an up-front ... (Read 363 times)

redpassion

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Mills Corp. is considering two mutually exclusive machines. Machine A requires an up-front expenditure at t = 0 of $510,000, has an expected life of 2 years, and will generate positive after-tax cash flows of $390,000 per year (all cash flows are realized at the end of the year) for 2 years. At the end of 2 years the machine will have zero salvage value, but every 2 years the company can purchase a replacement machine with the same cost and identical cash inflows.

Alternatively, it can choose Machine B, which requires an expenditure of $1.2 million at t = 0, has an expected life of 4 years, and will generate positive after-tax cash flows of $430,000 per year (all cash flows are realized at year-end). At the end of 4 years, Machine B will have an after-tax salvage value of $100,000.

The cost of capital is 11%. What is the NPV (on an extended 4-year life) of the better machine?


$197,438


$199,925


$283,552


$286,026



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Marked as best answer by redpassion on Aug 7, 2023

MajorWaffle

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redpassion

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Reply 2 on: Aug 7, 2023
Gracias!


kswal303

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Reply 3 on: Yesterday
Thanks for the timely response, appreciate it

 

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