Calculate the equivalent annuity cash flow

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Reference no: EM131853653

Your firm has to replace one of its fender-bender machines. One of your financial wizards has determined that the appropriate discount rate for the machine cash flows is 10%. Your firm has two alternatives.

1. Fender-bender Machine A costs $400,000 and produces annual cash flows of $200,000 at the end of each of its 6 years of life.

2. Fender-bender Machine B costs $200,000 but has only a 2-year life. However, it produces a $300,000 annual cash flow at the end of each of these 2 years.

Calculate the equivalent annuity cash flow (EAC) and determine which machine is preferable.

Reference no: EM131853653

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