Question
In: Finance
XYZ Inc is considering the purchase of a new machine for the production of computers. Machine A...
XYZ Inc is considering the purchase of a new machine for the production of computers. Machine A costs $6,500,000 and will last for 6 years. Variable costs are 20% of sales and fixed costs are $850,000 per year. Machine B costs $11,000,000 and will last for 10 years. Variable costs for the machine are 15% of sales and fixed costs are $1,000,000 per year. The sales for each machine will be $5,000,000 per year. The required rate of return is 10%, the tax rate is 21%, and both machines will be depreciated using straight-line with a no salvage value. Based on the information provided, the firm should:
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purchase machine A because it has a higher equivalent annual annuity |
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purchase machine A because it has a higher NPV |
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purchase machine B because it has a higher equivalent annual annuity |
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purchase machine B because it has a higher NPV |
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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