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Which machine should bcd choose

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Question 1: The Indian subsidiary of BDC, a US multinational, has the opportunity to invest in one of two mutually exclusive machines. Both machines can produce the same product for the Indian market. Machine A has a life of 9 years, costs 120 million Indian Rupees (IRP) and will produce after-tax inflows of 2.5 million IRP per year at the end of each year. Machine B has a life of 7 years, costs 150 million and will produce after-tax inflows of 3.5 million IRP per year at the end of each year. Assuming the machines can be replaced indefinitely at constant prices, which machine should BCD choose? Assume a cost of capital of 12%. The current spot rate is 0.013 US$/IRP.

Reference no: EM132557641

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