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Iceland Corporation Limited is considering investing in one of two machines – A or B. The initial cost and net cash inflows from each project are shown below. The opportunity cost for both projects is 10% per

Iceland Corporation Limited is considering investing in one of two machines – A or B. The initial cost and net cash inflows from each project are shown below. The opportunity cost for both projects is 10% per

Fundamentals of Financial Management (MindTap Course List)
Fundamentals of Financial Management (MindTap Course List)
15th Edition
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 16P: REPLACEMENT CHAIN The Lesseig Company has an opportunity to invest in one of two mutually exclusive...
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Question #4 Iceland Corporation Limited is considering investing in one of two machines – A or B. The initial cost and net cash inflows from each project are shown below. The opportunity cost for both projects is 10% per cent. Cash Flow Machine A Machine B $ 2$ Initial Cost (6 000 000) (4 500 000) Net Cash Inflows 1 000 000 1 300 000 1 400 000 1 600 000 Year 1 Year 2 1 600 000 1 600 000 1 200 000 Year 3 2 300 000 1 200 000 1 200 000 Year 4 Year 5 Required: a) Calculate the ARR on initial capital for machine A and machine B. b) Calculate the ARR on average capital for machine A and machine B.
Transcribed Image Text:Question #4 Iceland Corporation Limited is considering investing in one of two machines – A or B. The initial cost and net cash inflows from each project are shown below. The opportunity cost for both projects is 10% per cent. Cash Flow Machine A Machine B $ 2$ Initial Cost (6 000 000) (4 500 000) Net Cash Inflows 1 000 000 1 300 000 1 400 000 1 600 000 Year 1 Year 2 1 600 000 1 600 000 1 200 000 Year 3 2 300 000 1 200 000 1 200 000 Year 4 Year 5 Required: a) Calculate the ARR on initial capital for machine A and machine B. b) Calculate the ARR on average capital for machine A and machine B.
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