Mountain Fresh Water Company Is Considering Two Mutually Exclusive Machines

question 53

Multiple Choice

Mountain Fresh Water Company is considering two mutually exclusive machines. Machine A has an up-front cost of $100,000 (CF0 = -100,000) , and it produces positive after-tax cash inflows of $40,000 a year at the end of each of the next six years. Machine B has an up-front cost of $50,000(CF0 = - 50,000) , and it produces after-tax cash inflows of $30,000 a year at the end of the next three years. The
Company's cost of capital is 10.5%. Based on the equivalent annual annuity, which machine will be chosen?

• A) A,$71,687
• B) A,$16,702
• C) B,$23,954
• D) B,$9,718

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Unattractive Industry

An industry characterized by low profitability, high competition, or significant barriers to entry.

Intense Rivalry

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