Mills Corp

question 109

Multiple Choice

Mills Corp.is considering two mutually exclusive machines.Machine A requires an up-front expenditure at t = 0 of $450,000,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) for two years.At the end of two years,the machine will have zero salvage value,but every two years the company can purchase a replacement machine with the same cost and identical cash inflows.​Alternatively,it can choose Machine B,which requires an expenditure of $1 million at t = 0,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) .At the end of four years,Machine B will have an after-tax salvage value of $100,000.​The cost of capital is 10%.What is the NPV (on an extended four-year life) of the better machine?

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

---

Definitions:

Transmittal

A message explaining why something is being sent.

Title Page

The initial page of a book, document, or report, containing the title, author's name, and often the publisher's information.

Machine Translation Software

A type of software that uses artificial intelligence to translate text or speech from one language to another automatically.

Justification Report

Report that justifies the need for a purchase, an investment, a new personnel line, or a change in procedure.