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1) Company is selecting between machine X and Y (they are mutually exclusive and company can only choose one). Initial cost of machine X is $300,000 and it will last for seven years before it requires to be replaced. Cost of operating machine X each year is= $50,000. Initial cost of Machine Y is= $180,000 and it will last for five years before it requires to be replaced. Cost of operating machine Y is= $70,000 in cash flow per year. If required rate of return is= 9%,

a) Compute the seven year and five year annuity factors at 9% annual interest.

b) By using annuity factors, determine PV of Machine X and Machine Y including all costs (initial + operating).

c) Which machine is better choice for company after considering various lives of projects?

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  • Category:- Basic Finance
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