Problem 10-17 Unequal Lives The Perez Company has the opportunity to invest in one of two mutually exclusive...

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Finance

Problem 10-17
Unequal Lives
The Perez Company has the opportunity to invest in one of twomutually exclusive machines that will produce a product it willneed for the foreseeable future. Machine A costs $11 million butrealizes after-tax inflows of $5 million per year for 4 years.After 4 years, the machine must be replaced. Machine B costs $13million and realizes after-tax inflows of $3.5 million per year for8 years, after which it must be replaced. Assume that machineprices are not expected to rise because inflation will be offset bycheaper components used in the machines. The cost of capital is14%.
Using the replacement chain approach to project analysis, byhow much would the value of the company increase if it accepted thebetter machine? Enter your answer in millions. For example, ananswer of $1.2 million should be entered as 1.2, not 1,200,000.Round your answer to two decimal places.
$ million
What is the equivalent annual annuity for each machine? Enteryour answer in millions. For example, an answer of $1.2 millionshould be entered as 1.2, not 1,200,000. Round your answers to twodecimal places.
Machine A $ million
Machine B $ million

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Problem 10-17Unequal LivesThe Perez Company has the opportunity to invest in one of twomutually exclusive machines that will produce a product it willneed for the foreseeable future. Machine A costs $11 million butrealizes after-tax inflows of $5 million per year for 4 years.After 4 years, the machine must be replaced. Machine B costs $13million and realizes after-tax inflows of $3.5 million per year for8 years, after which it must be replaced. Assume that machineprices are not expected to rise because inflation will be offset bycheaper components used in the machines. The cost of capital is14%.Using the replacement chain approach to project analysis, byhow much would the value of the company increase if it accepted thebetter machine? Enter your answer in millions. For example, ananswer of $1.2 million should be entered as 1.2, not 1,200,000.Round your answer to two decimal places.$ millionWhat is the equivalent annual annuity for each machine? Enteryour answer in millions. For example, an answer of $1.2 millionshould be entered as 1.2, not 1,200,000. Round your answers to twodecimal places.Machine A$ millionMachine B$ million