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

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Definitions:

Segment Specialization

A marketing strategy where a company focuses on a specific segment of the market, tailoring its products and marketing efforts to meet the needs of that segment.

Strategy Formulation

The process of developing a plan of action to achieve long-term goals and objectives, often within a competitive context.

Competitive Advantages

Competitive advantages are attributes that allow an organization to outperform its competitors, including superior products, cost leadership, brand strength, or efficient operations.

Luxury Sedan Market

A segment of the automobile industry focused on producing and selling high-end sedans that offer superior comfort, performance, and status.