Question

1. You are evaluating two different silicon wafer milling machines. The Techron I costs $320,000, has a four-year life, and has operating costs of $85,000 per year. The Techron II costs $456,000, has a six-year life, and has operating costs of $46,000 per year. Assume a discount rate of 10 percent.

What is the NPV (cost) of Techron II's cash flows?

2. You are evaluating two different silicon wafer milling machines. The Techron I costs $320,000, has a four-year life, and has operating costs of $85,000 per year. The Techron II costs $456,000, has a six-year life, and has operating costs of $46,000 per year. Assume a discount rate of 10 percent.

What is Techron I's EAC? What is Techron II's EAC? Whichever machine is purchased WILL NOT BE REPLACED at the end of its useful life. Which machine do you prefer?

3. Which of the following capital budgeting criteria may lead to incorrect decisions in comparisons of mutually exclusive investments?

I. NPV II. IRR III. PI       IV. MIRR

Group of answer choices

I and II

I, II, III, and IV

II, III, and IV

III and IV

II and IV

Answer 1

1. What is the NPV (cost) of Techron II's cash flows? = $656342

* NPV @ 10%

2.

Which machine do you prefer?

it is preferable to take Techron II as it EAC is lowest among two.

3. Which of the following capital budgeting criteria may lead to incorrect decisions in comparisons of mutually exclusive investments?

I. NPV II. IRR III. PI       IV. MIRR

I and II

Only NPV and IRR will give contrasting decision about mutually exclusive decisions due to the fact that the cash flow are reinvested at IRR rate in IRR and at cost of capital in NPV