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Calculate both projects equivalent annual annuity

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Question - BSAM Co. has the opportunity to invest in either Machine D or Machine M to produce a product it will need for foreseeable future. Machine D can be used for 3 years and costs €7.5 million but realizes after-tax inflows of €3.5 million per year for the next 2 years and €3.9 million for last year before it must be replaced. Machine M can be used for 4 years and costs €13.5 million but realizes after-tax inflows of €5 million per year for the next 3 years and €3.8 million for last year.

Required -

Compute NPV using cost of capital of 12%.

Calculate both projects' Equivalent Annual Annuity (EAA).

Using Equivalent Annual Annuity (EAA) decide a project of your choice.

Reference no: EM133019104

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