Question

The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $10 million but realizes after-tax inflows of $4 million per year for 4 years. After 4 years, the machine must be replaced. Machine B costs $15 million and realizes after-tax inflows of $3.5 million per year for 8 years, after which it must be replaced. Assume that machine prices are not expected to rise because inflation will be offset by cheaper components used in the machines. The cost of capital is 10%.

- Using the replacement chain approach to project analysis, by
how much would the value of the company increase if it accepted the
better machine? Enter your answer in millions. For example, an
answer of $1.2 million should be entered as 1.2, not 1,200,000.
Round your answer to two decimal places.

$ ___million -
What is the equivalent annual annuity for each machine? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to two decimal places.

Machine A $ ___million Machine B $ ___million

Answer #1

The Perez Company has the opportunity to invest in one of two
mutually exclusive machines that will produce a product it will
need for the foreseeable future. Machine A costs $10 million but
realizes after-tax inflows of $4 million per y
The Perez Company has the opportunity to invest in one of two
mutually exclusive machines that will produce a product it will
need for the foreseeable future. Machine A costs $10 million but
realizes after-tax inflows of $4 million...

Unequal Lives
The Perez Company has the opportunity to invest in one of two
mutually exclusive machines that will produce a product it will
need for the foreseeable future. Machine A costs $11 million but
realizes after-tax inflows of $5 million per year for 4 years.
After 4 years, the machine must be replaced. Machine B costs $13
million and realizes after-tax inflows of $3.5 million per year for
8 years, after which it must be replaced. Assume that machine...

The Perez Company has the opportunity to invest in one of two
mutually exclusive machines that will produce a product it will
need for the foreseeable future. Machine A costs $9 million but
realizes after-tax inflows of $3.5 million per year for 4 years.
After 4 years, the machine must be replaced. Machine B costs $14
million and realizes after-tax inflows of $3 million per year for 8
years, after which it must be replaced. Assume that machine prices
are...

The Perez Company has the opportunity to invest in one of two
mutually exclusive machines that will produce a product it will
need for the foreseeable future. Machine A costs $10 million but
realizes after-tax inflows of $4 million per year for 4 years.
After 4 years, the machine must be replaced. Machine B costs $15
million and realizes after-tax inflows of $3.5 million per year for
8 years, after which it must be replaced. Assume that machine
prices are...

The Perez Company has the opportunity to invest in one of two
mutually exclusive machines that will produce a product it will
need for the foreseeable future. Machine A costs $8 million but
realizes after-tax inflows of $4.5 million per year for 4 years.
After 4 years, the machine must be replaced. Machine B costs $17
million and realizes after-tax inflows of $4.5 million per year for
8 years, after which it must be replaced. Assume that machine
prices are...

16. The Perez Company has the opportunity to invest in one of
two mutually exclusive machines that will produce a product it will
need for the foreseeable future. Machine A costs $11 million but
realizes after-tax inflows of $5 million per year for 4 years.
After 4 years, the machine must be replaced. Machine B costs $13
million and realizes after-tax inflows of $3.5 million per year for
8 years, after which it must be replaced. Assume that machine
prices...

15. Shao Airlines is considering the purchase of two alternative
planes. Plane A has an expected life of 5 years, will cost $100
million, and will produce net cash flows of $29 million per year.
Plane B has a life of 10 years, will cost $132 million, and will
produce net cash flows of $24 million per year. Shao plans to serve
the route for only 10 years. Inflation in operating costs, airplane
costs, and fares are expected to be...

Firm BCD has the opportunity to invest in one of two mutually
exclusive machines, which can both produce the same product.
Machine A has a life of 9 years, costs $12 million and will produce
after-tax inflows of $2.5 million per year at the end of each year.
Machine B has a life of 7 years, costs $15 million and will produce
after-tax inflows of $3.5 million per year at the end of each year.
Assuming that the machines can...

Sheldon Corporation projects the following free cash flows
(FCFs) and interest expenses for the next 3 years, after which FCF
and interest expenses are expected to grow at a constant 8% rate.
Sheldon’s unlevered cost of equity is 11% its tax rate is 40%.
Year
1
2
3
Free cash flow ($ millions)
$20
$30
$40
Interest expense ($ millions)
$8
$9
$10
What is Sheldon’s unlevered horizon value of operations at Year
3? Enter your answer in millions. For...

Shao Airlines is considering the purchase of two alternative
planes. Plane A has an expected life of 5 years, will cost $100
million, and will produce net cash flows of $29 million per year.
Plane B has a life of 10 years, will cost $132 million and will
produce net cash flows of $24 million per year. Shao plans to serve
the route for only 10 years. Inflation in operating costs, airplane
costs, and fares is expected to be zero,...

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