Question

A pharmaceutical company is considering two alternative machines for its production line. Machine A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Machine B has a life of 10 years, will cost $132 million, and will produce net cash flows of $25 million per year. The company plans to run the production line for 10 years. Inflation in operating costs, airplane costs, and fares is expected to be zero, and the company’s cost of capital is 11 percent. By how much would the value of the company increase if it accepted the better project (machine)?

Answer #1

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 $30 million per year.
Plane B has a life of 10 years, will cost $132 million, and will
produce net cash flows of $25 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,...

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 $30 million per year.
Plane B has a life of 10 years, will cost $132 million, and will
produce net cash flows of $25 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 zero,...

Shao Airlines is considering two alternative planes. Plane A has
an expected life of 5 years, will cost $100 million and will
produce net cash flows of $30 million per year. Plane B has a life
of 10 years, will cost $132 million and will produce net cash flows
of $25 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, and the company's...

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,...

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 $28 million per year.
Plane B has a life of 10 years, will cost $132 million and will
produce net cash flows of $27 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,...

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 $30 million per year.
Plane B has a life of 10 years, will cost $132 million and will
produce net cash flows of $27 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,...

Unequal Lives
Shao Airlines is considering 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, and...

Unequal Lives
Shao Airlines is considering two alternative planes. Plane A has
an expected life of 5 years, will cost $100 million and will
produce net cash flows of $30 million per year. Plane B has a life
of 10 years, will cost $132 million and will produce net cash flows
of $27 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, and...

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 zero,...

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 $30 million per year.
Plane B has a life of 10 years, will cost $132 million and will
produce net cash flows of $25 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 zero,...

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