Calculate the eaa of machine a

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Reference no: EM131992303

Sperry Corporation can invest in one of two mutuall exclusive machines that will make a product it needs for the next 4 years. Machine A costs $9 million but realizes after- tax inflows of $6.3 million per year for 2 years, after which it must be replaced. Machine B costs $12 million and realizes after-tax inflows of $4.8 million per year for 4 years.

Based on the firm's cost of capital of 12 percent, the NPV of Machine B is $2,579,277, wuth an equivalent annual annuity (EAA) of $849,187 per year.

Calculate the EAA of Machine A. Compare your result to that of Machine B and decide which to recommend.

A. EAAa= $974,717; Purcahse Machine A

B. EAAa= $542,355; Purchase Machine B

C. EAAa= $3,336,890; Purchase MAchine A

D. EAAa= $1,084,710; Purchase Machine A

E. EAAa= $1,979,484; Purchase Machine A

Reference no: EM131992303

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