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Smuttynose Brewerey is considering two alternative lager beer brewing equipment:

Bayerische Lager Brewer has an expected life of 3 years, will cost $5 million, and will produce net cash flows of $3.75 million per year. Bohemian Lager Brewer has a life of 5 years, will cost $8.5 million, and will produce net cash flows of $4 million per year. Smuttynose plans to serve the lager segment indefinitely. Inflation in operating costs is expected to be zero, and the company’s cost of capital is 15% percent. By how much would the value of the company increase per year if it accepted the higher NPV project?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92418744

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