Understanding of capital budgeting

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Reference no: EM131354376

Morgan Worch, president of Blue Ridge Summit, is considering the purchase of a machine that will produce new fishing lures. Two machines are available. The CRJ2000 costs $50,000 and will last for 7 years. It will produce positive incremental cash flows of $12,000 per year. The GS180 costs $60,000 and will last for 9 years. It will produce incremental cash flows of $14,000 per year. Based on this information and on Morgan’s understanding of capital budgeting from her undergraduate introductory finance course, she knows that the equivalent annual annuity of the machine Blue Ridge Summit should choose is $_______. Assume a discount rate of 8%.

a. 2,396.38

b. 3,043.25

c. 3,500.00

d. 4,395.22

e. 5,178.67

Reference no: EM131354376

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