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In: Accounting

You are considering buying one of two machines. Machine A costs $5,000, should last 10 years,...

You are considering buying one of two machines. Machine A costs $5,000, should last 10 years, and will generate cash flows of $900/year. Machine B costs $8,000, should last only 6 years, and will generate cash flows of $1,900/year. The Discount Rate is 8%.

  1. What is the NPV and EAC of each project? Based on your analysis, which machine should you buy?
  2. Suppose instead that the cash flows occur at mid-year. (Assume the initial payment still occurs at the end of year 0).
    1. Compute the NPV and the EAC of each project.  
    2. Does your EACs increase or decrease? Does this make sense?
    3. Does your answer to Part A change?

Solutions

Expert Solution

Part b

II. The EAB of the projects have increased.

III. The answer for Part A doesnot change

ekkarill92 answered 1 year ago
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