Machine -Select- is the better project and will increase the company's value by $ Machine -Select- millions, rather than the s millions created by
Machine -Select- is the better project and will increase the company's value by $ Machine -Select- millions, rather than the s millions created by
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The Lesseig Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next 8
years. Machine A has an after-tax cost of $8.9 million but will provide after-tax inflows of $4.2 million per year for 4 years. If Machine A were replaced, its after-
tax cost would be $10 million due to inflation and its after-tax cash inflows would increase to $4.4 million due to production efficiencies. Machine B has an after-
tax cost of $13.1 million and will provide after-tax inflows of $3.5 million per year for 8 years. If the WACC is 12%, which machine should be acquired? Explain.
Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your
answers to two decimal places.
Machine -Select-is the better project and will increase the company's value by $
Machine -Select-
millions, rather than the s
millions created by](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5f58b28c-d800-4ddf-a87e-4059dc58788f%2F23cd8c04-537b-45c0-b20b-dc597073f79b%2F0ew1x1q_processed.jpeg&w=3840&q=75)
Transcribed Image Text:eBook
The Lesseig Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next 8
years. Machine A has an after-tax cost of $8.9 million but will provide after-tax inflows of $4.2 million per year for 4 years. If Machine A were replaced, its after-
tax cost would be $10 million due to inflation and its after-tax cash inflows would increase to $4.4 million due to production efficiencies. Machine B has an after-
tax cost of $13.1 million and will provide after-tax inflows of $3.5 million per year for 8 years. If the WACC is 12%, which machine should be acquired? Explain.
Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your
answers to two decimal places.
Machine -Select-is the better project and will increase the company's value by $
Machine -Select-
millions, rather than the s
millions created by
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