Machines A and B are mutually exclusive and are expected to produce the following real cash...

90.2K

Verified Solution

Question

Finance

Machines A and B are mutually exclusiveand are expected to produce the following real cash flows:
Cash Flows ($ thousands)
Machine
C₀
C₁
C₂
C₃
C₄
A
-117
115
135
150
B
-125
110
150
-50
200
The real opportunity cost of capitalis 10%.
Calculate the NPV of each machine.
Calculate the equivalent annual cash flow from each machine.
Which machine should you buy? Justify your answer.
When appraising mutually exclusive investments in plant andequipment, financial managers calculate the investments' equivalentannual costs and rank the investments on this basis. Criticallydiscuss why this is necessary and why not just compare theinvestments' NPVs?

Answer & Explanation Solved by verified expert

3.9 Ratings (741 Votes)

ANSWER aANSWER bAnswer c From the point of view of NPVMachine A should be bought HIGHER ISBETTER Explanation Net present value NPV is thedifference between the present value of cash inflows and thepresent value of cash outflows over a period of time From the point of view of See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Machines A and B are mutually exclusiveand are expected to produce the following real cash flows:Cash Flows ($ thousands)MachineC0C1C2C3C4A-117115135150B-125110150-50200The real opportunity cost of capitalis 10%.Calculate the NPV of each machine. Calculate the equivalent annual cash flow from each machine. Which machine should you buy? Justify your answer. When appraising mutually exclusive investments in plant andequipment, financial managers calculate the investments' equivalentannual costs and rank the investments on this basis. Criticallydiscuss why this is necessary and why not just compare theinvestments' NPVs?

Cash Flows ($ thousands)
Machine	C₀	C₁	C₂	C₃	C₄
A	-117	115	135	150
B	-125	110	150	-50	200