Champion Contractors Corp Is Trying to Decide Which of Two

question 45

Essay

Champion Contractors Corp is trying to decide which of two machines to buy.The price of the machines and their respective cash flows are described below.The decision to buy is based on which of the two machines produces the largest rate of return.Given the information below which of the machines should Champion buy?
Machine A: Cost $130,000 and will produce $36,063.27 each year for 5 years
Machine B: Cost $125,000 and will produce $16,188.07 every 6 months for 5 years (10 pmts).

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Definitions:

Debt-Equity Ratio

The ratio that measures the relative proportion of shareholders' equity and debt used to finance a company's assets.

After-Tax Earnings

The amount of net income a firm has after all taxes have been paid, representing the company's profitability.

Retained Earnings

Profits that a company keeps or retains rather than distributing to shareholders as dividends, often used for reinvestment.

Taxable Income

The amount of income subject to tax, after deductions and exemptions, as determined by tax laws.