The Lesseis Company has an opportunity to invest in one of two mutally 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 million but will provide after-tuy inflows of $4.9 million per year for 4 years. If Machine A were replaced, its after-tax cost would be illica $8.7 million due to inflation and its after-tax cash inflows would increase to $5.1 million. due to production efficiencies. Machine B has an after-tax cost of $13.7 million and will provide after tax inflows of $4,5 million per year for 8 years. If the WACC is 8%, which machine should be answers in millions, For example, acquired? Enter your an answer of $10, 550, 000 should be entered as 10.55. Do not rand intermediate calculations. Round your answers to two decimal places. Machine A is the better project and will increase the company's value than the $ by $' milllans, rather millions created by Machine B.

The Lesseis Company has an opportunity to invest in one of two mutally 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 million but will provide after-tuy inflows of $4.9 million per year for 4 years. If Machine A were replaced, its after-tax cost would be illica $8.7 million due to inflation and its after-tax cash inflows would increase to $5.1 million. due to production efficiencies. Machine B has an after-tax cost of $13.7 million and will provide after tax inflows of $4,5 million per year for 8 years. If the WACC is 8%, which machine should be answers in millions, For example, acquired? Enter your an answer of $10, 550, 000 should be entered as 10.55. Do not rand intermediate calculations. Round your answers to two decimal places. Machine A is the better project and will increase the company's value than the $ by $' milllans, rather millions created by Machine B.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 17P: The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will...

See similar textbooks

Similar questions

The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
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.
Rini Airlines is considering two alternative planes. Plane A hasan expected life of 5 years, will cost $95 million, and will produce after-tax cash flows of$35 million per year. Plane B has a life of 10 years, will cost $112 million, and will produceafter-tax cash flows of $25 million per year. Rini plans to serve the route for 10 years. Thecompany’s WACC is 9%. If Rini needs to purchase a new Plane A, the cost will be $105million, but cash inflows will remain the same. Should Rini acquire Plane A or Plane B?Explain your answer.
the to be In 2 years, XYZ is considering buying a new, high efficiency interception system. The new system would be purchased today for $46,500.00. It would be depreciated straight-line to $0 over 2 years. system would be sold for an after-tax cash flow of $14,700.00. Without the system, costs are expected to be $100,000.00 in 1 year and $100,000.00 in 2 years. With the system, $79,700.00 in 1 year and $67,000.00 in 2 years. If the tax rate is 48.30% and the cost of capital is 8.30%, what is the net present value of the new interception system project? costs are expected O $13344.34 (plus or minus $50) O $14279.01 (plus or minus $50) O $10213.60 (plus or minus $50) O $11718.49 (plus or minus $50) None of the above is within $50 of the correct answer
Your company must choose one of two mutually exclusive projects. Project A costs$2,000 today and has after-tax cash flows of $1,500 per year for 4 years. Project Bcosts $1,500 today and has after-tax cash flows of $1,750 per year for 2 years. Thefirm’s WACC is 10%. If the projects cannot be repeated, what is the NPV of the betterproject? f the projects can be repeated, what is the extendedNPV of the better project? What is the EAA of each project?
XYZ is considering buying a new, high efficiency interception system. The new system would be purchased today for $47,700.00. It would be depreciated straight-line to SO over 2 years. In 2 years, the system would be sold for an after-tax cash flow of $14,600.00. Without the system, costs are expected to be $100,000.00 in 1 year and $100,000.00 in 2 years. With the system, costs are expected to be $79,000.00 in 1 year and $69,700.00 in 2 years. If the tax rate is 46.50% and the cost of capital is 8.40%, what is the net present value of the new interception system project? a. $11893.11 (plus or minus $50) b. $12724.27 (plus or minus $50) c. $8553.76 (plus or minus $50) d. $9953.14 (plus or minus $50) e. None of the above is within $50 of the correct answer
Consider a machine that costs P20,000 and has a five years useful life. At the end of the five years, it can be sold for P4,000 after tax adjustment. The annual operating and maintenance (O&M) costs are about P500. If the firm could earn an after-tax revenue of P5,000 per year with this machine, should it be purchased at an interest rate of 10%?
2
MoreTech Drilling may buy a patent with 14 years of life left. If MoreTech spends $ 1.5M to implement the technology, it expects net revenues of $650, 000 per year for the patent's life. If MoreTech's discount rate for money's time value is 10%, what is the maximum price that MoreTech can pay for the patent?
Let's say you have a project which will cost $25mm to build or buy. It will produce after-tax cash flows of $4mm for 9 years with each cash flow occurring at the end of the year. At the end of the 9 years, you will also receive a residual value payment of $3mm. What is the IRR of the project? Round to the nearest one decimal place and use the % symbol. 6.3% would be the form of a correct answer.
Apex Unlimited is working uponthe renovation of its factory in the upcoming year and for they expect an outflow of $50,000 immediately and they expect the benefits out of the same for $25,000 for the next 3 years. The inflation rate that is currently prevailing is 5%. You are required to assess whether the decisionto renovate will be profitable by using a BCR. (Use Annual Worth method)
Tripp Industries is considering buying a new recycling system. The new recycling system would be purchased today for $7,760.00. It would be depreciated straight-line to $1,060.00 over 2 years. In 2 years, the recycling system would be sold and the after-tax cash flow from capital spending in year 2 would be $1,290.00. The recycling system is expected to reduce costs by $2,810.00 in year 1 and by $8,610.00 in year 2. If the tax rate is 59.00 % and the cost of capital is 7.16%, what is the net present value of the new recycling system project? $426.49 (plus or minus $10) $331.08 (plus or minus $10) $1,078.26 (plus or minus $10) -$2,115.95 (plus or minus $10) None of the above is within $10 of the correct answer