Question

In: Finance

A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the...

A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $25,703.00 per year for 8 years and costs $103,084.00. The UGA-3000 produces incremental cash flows of $28,092.00 per year for 9 years and cost $124,042.00. The firm’s WACC is 7.28%. What is the equivalent annual annuity of the UGA-3000? Assume that there are no taxes.

Solutions

Expert Solution

Equivalent Annual Annuity (EAA) of UGA-3000

Net Present Value (NPV)

Year

Annual cash flows ($)

Present Value Factor (PVF) at 7.28%

Present Value of annual cash flows ($)

[Annual cash flow x PVF]

1

28,092

0.932140

26,185.68

2

28,092

0.868885

24,408.73

3

28,092

0.809923

22,752.36

4

28,092

0.754962

21,208.39

5

28,092

0.703730

19,769.19

6

28,092

0.655975

18,427.65

7

28,092

0.611461

17,177.16

8

28,092

0.569967

16,011.52

9

28,092

0.531289

14,924.98

TOTAL

6.438333

180,865.65

Net Present Value (NPV) = Present Value of annual cash inflows – Initial Investment

= $180,865.65 - $124,042

= $56,823.65

Equivalent Annual Annuity (EAA) of UGA-3000

Equivalent Annual Annuity (EAA) of UGA-3000 = Net Present Value / [PVIFA 7.28%, 9 Years]

= $56,823.65 / 6.438333

= $8,825.83

“Therefore, the Equivalent Annual Annuity (EAA) of UGA-3000 will be $8,825.83”

NOTE    

The Formula for calculating the Present Value Factor is [1/(1 + r)n], Where “r” is the Discount/Interest Rate and “n” is the number of years.


Related Solutions

A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the...
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $25,975.00 per year for 8 years and costs $98,998.00. The UGA-3000 produces incremental cash flows of $27,135.00 per year for 9 years and cost $126,368.00. The firm’s WACC is 7.67%. What is the equivalent annual annuity of the GSU-3300? Assume that there are no taxes.
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the...
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $25,785.00 per year for 8 years and costs $104,429.00. The UGA-3000 produces incremental cash flows of $28,284.00 per year for 9 years and cost $124,482.00. The firm’s WACC is 7.72%. What is the equivalent annual annuity of the GSU-3300? Assume that there are no taxes.
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the...
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $26,375.00 per year for 8 years and costs $98,451.00. The UGA-3000 produces incremental cash flows of $29,102.00 per year for 9 years and cost $126,860.00. The firm’s WACC is 8.77%. What is the equivalent annual annuity of the GSU-3300? Assume that there are no taxes....
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the...
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $26,412.00 per year for 8 years and costs $99,693.00. The UGA-3000 produces incremental cash flows of $27,892.00 per year for 9 years and cost $124,204.00. The firm’s WACC is 9.17%. What is the equivalent annual annuity of the GSU-3300? Assume that there are no taxes....
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the...
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $24,279.00 per year for 8 years and costs $103,609.00. The UGA-3000 produces incremental cash flows of $27,576.00 per year for 9 years and cost $125,527.00. The firm’s WACC is 7.00%. What is the equivalent annual annuity of the GSU-3300? Assume that there are no taxes....
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the...
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $26,524.00 per year for 8 years and costs $100,921.00. The UGA-3000 produces incremental cash flows of $28,172.00 per year for 9 years and cost $125,191.00. The firm’s WACC is 7.78%. What is the equivalent annual annuity of the GSU-3300? Answer Format: Currency: Round to: 2...
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the...
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $26,595.00 per year for 8 years and costs $99,519.00. The UGA-3000 produces incremental cash flows of $29,457.00 per year for 9 years and cost $125,017.00. The firm’s WACC is 7.14%. What is the equivalent annual annuity of the UGA-3000? Answer Format: Currency: Round to: 2...
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the...
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $26,363.00 per year for 8 years and costs $102,625.00. The UGA-3000 produces incremental cash flows of $28,432.00 per year for 9 years and cost $124,415.00. The firm’s WACC is 7.71%. What is the equivalent annual annuity of the UGA-3000? Answer Format: Currency: Round to: 2...
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the...
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $24,581.00 per year for 8 years and costs $104,374.00. The UGA-3000 produces incremental cash flows of $28,483.00 per year for 9 years and cost $126,299.00. The firm’s WACC is 7.73%. What is the equivalent annual annuity of the UGA-3000?
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the...
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $25,369.00 per year for 8 years and costs $98,580.00. The UGA-3000 produces incremental cash flows of $29,543.00 per year for 9 years and cost $124,499.00. The firm’s WACC is 9.38%. What is the equivalent annual annuity of the GSU-3300?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT