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 $8.5 million but will provide after-tax inflows of $4.8 million per year for 4 years. If Machine A were replaced, its cost would be $10.5 million due to inflation and its cash inflows would increase to $4.9 million due to production efficiencies. Machine B costs $14.9 million and will provide after-tax inflows of $4.2 million per year for 8 years. If the WACC is 12%, 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 (A) OR (B)  is the better project and will increase the company's value by $_____ millions, rather than the $____ millions created by Machine (A) OR (B)

Answer 1