A Small Manufacturer Is Considering Two Alternative Machines

question 64

Multiple Choice

A small manufacturer is considering two alternative machines.Machine A costs $1.0 million,has an expected life of 5 years,and generates after-tax cash flows of $350,000 per year.At the end of 5 years,the salvage value of the machine is zero,but the company will be able to purchase another Machine A at a cost of $1.2 million.The second Machine A will generate after-tax cash flows of $375,000 a year for another 5 years,at which time its salvage value will again be zero.Alternatively,the company can buy Machine B at a cost of $1.5 million today.Machine B will produce after-tax cash flows of $400,000 a year for 10 years,after which it will have an after-tax salvage value of $100,000.Assume that the cost of capital is 12%.Based on the equivalent annual annuity,if the company chooses the machine that adds the most value to the firm,by how much will the company's value increase per year?

• A)$792,286.54
• B)$347,802.00
• C)$140,227.71
• D)$61,557.88

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Definitions:

True Attitudes

Genuine feelings or positions an individual holds towards an object, person, or situation, often distinguished from those expressed due to social pressure or compliance.

Implicit Attitudes

Automatic associations based on previous learning through the experiential system.

Implicit Attitudes

Unconscious beliefs or feelings towards objects, people, or concepts that can influence behavior and perceptions.

Explicit Attitudes

Attitudes people are consciously aware of through the cognitive system.