Present value of cash out- and inflows for both devices

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Reference no: EM131948061

(Equivalent annuity). Your task is to evaluate two pollution control devices. You have already done all the work with estimation of the cash flows and should come up with the decision which control device to choose. The system A costs 240 000 EUR today and has cash operating costs of 20 000 a year for the next 6 years. The system B has an initial cash outlay of 350 000 and cash operating costs of 15 000 for the next 10 years. The company uses linear depreciation for both devices and the corporate tax rate is 35%. Cost of capital for the project (WACC) is 10%. a. b. c. Compute the cash flows for both machines Compute the present value of cash out- and inflows for both devices. Use an equivalent annuity to make a choice between two devices. Explain the motivation behind the use of equivalent annuity. 4. Cost of capital, WACC.

Reference no: EM131948061

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