A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $24,577.00 per year for 8 years and costs $103,073.00. The UGA-3000 produces incremental cash flows of $28,044.00 per year for 9 years and cost $126,083.00. The firm’s WACC is 7.55%. What is the equivalent annual annuity of the GSU-3300? Assume that there are no taxes.
Currency Rounded to 4 Decimal places. Thank You.
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Answer:
| Year | Cashflows | PVIFA | PV |
| 0 | -103073 | 1 | -103073 |
| 1 | 24577 | 0.929800093 | 22851.69689 |
| 2 | 24577 | 0.864528213 | 21247.50989 |
| 3 | 24577 | 0.803838413 | 19755.93667 |
| 4 | 24577 | 0.747409031 | 18369.07175 |
| 5 | 24577 | 0.694940986 | 17079.56462 |
| 6 | 24577 | 0.646156194 | 15880.58078 |
| 7 | 24577 | 0.600796089 | 14765.76548 |
| 8 | 24577 | 0.558620259 | 13729.21012 |
| NPV | 40606.33619 | ||
| PVIFA(7.55%, 8) | 5.8461 | ||
| EAA = NPV/PVIFA | 6945.8846 |
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