Mills Corp

question 47

Multiple Choice

Mills Corp. is considering adopting one of two machines. Machine A requires an up-front expenditure at t = 0 of $450,000. Machine A has an expected life of two years, and will generate positive after-tax cash flows of $350,000 per year (all cash flows are realized at the end of the year) Alternatively, Machine B requires an expenditure of $1 million at t = 0. Machine B has an expected life of four years, and will generate positive after-tax cash flows of $350,000 per year (all cash flows are realized at year end) The cost of capital is 10 percent. What is the net present value (on an extended four-year life) of the better machine?

• A) $157,438
• B) $177,754
• C) $287,552
• D) $355,508
• E) $500,000

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