The Lesseig Company has an opportunity to invest in one oftwo mutually exclusive machines that will produce a product the company will needfor the next 8 years. Machine A costs $8.9 million but will provide after-tax inflowsof $4.5 million per year for 4 years. If Machine A were replaced, its cost would be$9.8 million due to inflation and its cash inflows would increase to $4.7 million dueto production efficiencies. Machine B costs $13.9 million and will provide after-taxinflows of $4.3 million per year for 8 years. If the WACC is 9%, which machine shouldbe acquired? Explain.
The Lesseig Company has an opportunity to invest in one oftwo mutually exclusive machines that will produce a product the company will needfor the next 8 years. Machine A costs $8.9 million but will provide after-tax inflowsof $4.5 million per year for 4 years. If Machine A were replaced, its cost would be$9.8 million due to inflation and its cash inflows would increase to $4.7 million dueto production efficiencies. Machine B costs $13.9 million and will provide after-taxinflows of $4.3 million per year for 8 years. If the WACC is 9%, which machine shouldbe acquired? Explain.
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 costs $8.9 million but will provide after-tax inflows
of $4.5 million per year for 4 years. If Machine A were replaced, its cost would be
$9.8 million due to inflation and its
to production efficiencies. Machine B costs $13.9 million and will provide after-tax
inflows of $4.3 million per year for 8 years. If the WACC is 9%, which machine should
be acquired? Explain.
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