Question
In: Finance
Creative furniture is considering 2 mutually exclusive machines. Machine A costs $130,000 and would produce net...
Creative furniture is considering 2 mutually exclusive machines. Machine A costs $130,000 and would produce net cash flows of $35,000 annually for 6 years, so A has an equivalent annual annuity (EAA) of $3,381. Machine B costs $130,000 and would produce annual cash flows of $27,000 for 11 years. Creative's cost of capital is 12%. Using the equivalent annual annuity method, which machine should be chosen?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Machines A and B are mutually exclusive and are expected to produce the following real cash...
Machines A and B are mutually exclusive and are expected to
produce the following real cash flows:
Cash Flows ($ thousands)
Machine
C0
C1
C2
C3
A
−109
+119
+130
B
−129
+119
+130
+142
The real opportunity cost of capital is 8%.
a. Calculate the NPV of each machine.
(Enter your answers in dollars not in thousands. Round your
answers to the nearest whole dollar amount.)
b. Calculate the equivalent annual cash flow from
each machine. (Enter your answers...
Machines A and B are mutually exclusive and are expected to produce the following real cash...
Machines A and B are mutually exclusive and are expected to
produce the following real cash flows: Cash Flows ($ thousands)
Machine C0 C1 C2 C3 A –108 +118 +129 B –128 +118 +129 +141 The real
opportunity cost of capital is 9%. (Use PV table.) a. Calculate the
NPV of each machine. (Do not round intermediate calculations. Enter
your answers in thousand rounded to the nearest whole number.)
Machine NPV A $ B $ b. Calculate the equivalent annual...
Machines A and B are mutually exclusive and are expected to produce the following real cash...
Machines A and B are mutually exclusive
and are expected to produce the following real cash flows:
Cash Flows ($ thousands)
Machine
C0
C1
C2
C3
C4
A
-117
115
135
150
B
-125
110
150
-50
200
The real opportunity cost of capital
is 10%.
Calculate the NPV of each machine.
Calculate the equivalent annual cash flow from each machine.
Which machine should you buy? Justify your answer.
When appraising mutually exclusive investments in plant and...
For two mutually exclusive machines, which machine will you select if the MARR is 12% based...
For two mutually exclusive machines, which machine will you
select if the MARR is 12% based on the concept of IRR?
Years
CF for Machine A
CF for Machine B
0
$ (120,000)
$ (148,000)
1
$ 32,000
$ 46,000
2
$ 35,000
$ 49,000
3
$ 38,000
$ 52,000
4
$ 41,000
$ 52,000
5
$ 44,000
$ (52,000)
6
$ (24,000)
$ 55,000
7
$ 47,000
$ 55,000
8
$ (21,000)
$ (21,000)
Machine A
Machine B
Both need to be rejected.
Both are equally good.
Comparing Mutually Exclusive ProjectsVandelay Industries is considering the purchase of a new machine for the production...
Comparing Mutually Exclusive ProjectsVandelay Industries is
considering the purchase of a new machine for the production of
latex. Machine A costs $1.98 million and will last for six years.
Variable costs are 35 percent of sales and fixed costs are $187,000
per year. Machine B costs $5,400,000 and will last for nine years.
Variable costs for this machine are 30 percent and fixed costs are
$145,000 per year. The sales for each machine will be $12.4 million
per year. The...
You are considering two mutually exclusive projects, A and B. Project A costs $70,000 and generates...
You are considering two mutually exclusive projects, A and
B.
Project A costs $70,000 and generates cash flows of $10,000 for
10 years.
Project B costs $80,000 and generates cash flows of $2,000 for
six years and then cash flows of $28,000 for four years.
Report rates in percentage form to two decimal places i.e.
10.03% not 10%
At what discount rate would make you indifferent between
choosing one project or another?
What is the highest discount rate in which...
You are considering two mutually exclusive projects, A and B. Project A costs $70,000 and generates...
You are considering two mutually exclusive projects, A and
B.
Project A costs $70,000 and generates cash flows of $12,000 for
10 years.
Project B costs $60,000 and generates cash flows of $2,000 for
six years and then cash flows of $29,000 for four years.
Which project would you accept if your discount rate was 10%?
Which project would you accept if your discount rate was 5%?
Flower Engineering is considering two mutually exclusive investments. The projects' expected net cash flows are as...
Flower Engineering is considering two mutually exclusive
investments. The projects' expected net cash flows are as
follows:
Expected Net Cash
Flows
Time Project
A
Project
B
0
($400)
($700)
1
($280)
$201
2
($200)
$202
3
($100)
$203
4
$600
$204
5
$600
$205
6
$925
$206
7
($170)
$207
In your report, identify which project would be selected
(assuming they...
Flower Engineering is considering two mutually exclusive investments. The projects' expected net cash flows are as...
Flower Engineering is considering two mutually exclusive
investments. The projects' expected net cash flows are as
follows:
Expected Net Cash
Flows
Time Project
A
Project
B
0
($400)
($700)
1
($280)
$201
2
($200)
$202
3
($100)
$203
4
$600
$204
5
$600
$205
6
$925
$206
7
($170)
$207
In your report, identify which project would be selected
(assuming they...
Flower Engineering is considering two mutually exclusive investments. The projects' expected net cash flows are as...
Flower Engineering is considering two mutually exclusive
investments. The projects' expected net cash flows are as
follows:
Expected Net Cash
Flows
Time Project
A
Project
B
0
($400)
($700)
1
($280)
$201
2
($200)
$202
3
($100)
$203
4
$600
$204
5
$600
$205
6
$925
$206
7
($170)
$207
In your report, identify which project would be selected
(assuming they...
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