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What is the equivalent annual annuity for each machine

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Filkins Fabric Company has the opportunity to invest in one of two mutually exclusive knitting machines that will produce a product it will need for the foreseeable future. Machine A costs $190,000 and realizes after-tax inflows of $87,000 per year for 3 years. Machine B costs $360,000 and realizes after-tax inflows of $98,300 per year for 6 years. Assume that machine prices are not expected to rise because inflation will be offset by cheaper components used in the machines. The cost of capital is 14%. (Ignore CCA)

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Problem 1: What is the equivalent annual annuity for each machine? Which machine should be chosen?

Reference no: EM132806421

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