What is equivalent annual annuity for each machine

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Reference no: EM131318807

The Perez Company has the opportunity to invest in one of two mutually exclusive machines. Machine A costs $10 million but realizes after-tax inflows of $4 million per year for 4 years. After 4 years, the machine must be replaced. Machine B costs $15 million, realizes after-tax cash inflows of $3.5 million per year for 8 years, after which it must be replaced. Assume zero inflation. The cost of capital is 10%. By how much would the value of the company increase if it bought the better machine? What is the equivalent annual annuity for each machine?

Reference no: EM131318807

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