Suppose that a fim with a 12% required rate of retum is faced with the problem of replacing an ageing machine and is considering two replacement machines, one with a four-year life and the other with a five-year life. The relevant cash-flow information for these projects is given in the following table. Calculate the equivalent annual annuity (EAA) of each machine. Which machine should be chosen? Year 1 3 4 5 Machine A -$25,300 8,200 8,200 8,200 10,000 Machine B -$33,600 9,100 9,100 9,100 9,100 12,300

Suppose that a fim with a 12% required rate of retum is faced with the problem of replacing an ageing machine and is considering two replacement machines, one with a four-year life and the other with a five-year life. The relevant cash-flow information for these projects is given in the following table. Calculate the equivalent annual annuity (EAA) of each machine. Which machine should be chosen? Year 1 3 4 5 Machine A -$25,300 8,200 8,200 8,200 10,000 Machine B -$33,600 9,100 9,100 9,100 9,100 12,300

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section10.A: Mutually Exclusive Investments Having Unequal Lives

Problem 2P

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