Invest in one of two mutually exclusive machines

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Reference no: EM131517193

Danford enterprises can invest in one of two mutually exclusive machines that will make a product it needs for the next 8 years. Machine C cost $ 15 million but realizes after-tax inflows of $4.7 million per year for 4 years, after which it must be replaced. Machine D cost $25 milion and realizes after-tax inflows of $5.6 million per year for 8 years. Based on the firm's cost of capital of 7 percent, the NPV of Machine D is $8,439,272, with an equivalent annual annuity (EAA) of $1,413,306 per year. Calculate the EAA of Machine C. Compare your result to that of Machine D and decided which to recommend.

Select one:

a. EAAc = $271,578; Purchase Machine D

b. EAAc= $154,052; Purchase Machine D

c. EAAc= $2,187,984; Purchase Machine C

d. EAAc= $308,105; Purchase Machine D

e. EAAc= $349,498; Purchase Machine D

Reference no: EM131517193

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