Your firm is considering the purchase of two alternative machinery: Machine A has an expected life of 2 years, will cost Rs. 75 million, and will produce net cash flows of INR 45 million per year. Machine B has a life of 4 years, will cost INR 100 million, and will produce net cash flows of INR 33 million per year. Your firm plans to use the chosen machine for only 4 years. Inflation in operating costs, machinery costs, is expected to be zero, and the company’s cost of capital is 9%. Which machine is acceptable as the better project using replacement chain method? Will your choice hold if cost of A becomes INR 90 million for second year? What is the equivalent annual annuity cost for each machine and evaluating with this criterion, do you find any difference in your decision on the better machinery, when you had used replacement chain method
Your firm is considering the purchase of two alternative machinery: Machine A has an expected life of 2 years, will cost Rs. 75 million, and will produce net cash flows of INR 45 million per year. Machine B has a life of 4 years, will cost INR 100 million, and will produce net cash flows of INR 33 million per year. Your firm plans to use the chosen machine for only 4 years. Inflation in operating costs, machinery costs, is expected to be zero, and the company’s cost of capital is 9%. Which machine is acceptable as the better project using replacement chain method? Will your choice hold if cost of A becomes INR 90 million for second year? What is the equivalent annual
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