Question

The Lesseig Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next eight years. Machine A costs $9.9 million but will provide after-tax inflows of $4.2 million per year for 4 years. If Machine A were replaced, its cost would be $11.6 million due to inflation and its cash inflows would increase to $4.4 million due to production efficiencies. Machine B costs $13.4 million and will provide after-tax inflows of $3.5 million per year for 8 years. If the WACC is 5%, which machine should be acquired? Explain. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places.

Machine B is the better project and will increase the company's value by $_________ millions, rather than the $______millions created by Machine A

Answer 1