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