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

---

Definitions:

Railroads

Railroads are companies that operate trains on a set of tracks for the transport of goods and passengers.

Conserve And Administer

The act of preserving resources or assets and managing them responsibly for current and future use.

Chapter 11

A chapter of the U.S. Bankruptcy Code allowing a business to continue operations while reorganizing its debts under court supervision.

Creditors

Individuals or entities to whom money is owed by a debtor.