Question 5 (1 point)
Unequal Lives. Your company is considering two machines to stamp metal in its
factory. Machine A costs $500,000, it has a life of four years, and it will generate
after-tax cash flows of $190,000 each year. Machine B costs $300,000, has a life of
three years, and will generate after-tax cash flows of $150,000 each year. The
company's WACC is 13% per year. Calculate Equivalent Annual Annuities (EAA's).
Which machine should your company purchase?
1) A=$23,903; B=$22,943. Choose A
2) A=$21,903; B=$22,943. Impossible to determine.
3) A=$21,903; B=$22,943. Choose B
4) A=$20,000; B=$22,000. Choose B
5) A=$23,903; B=$22,943. Impossible to determine.