Question

A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm's production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $26,961.00 per year for 8 years and costs $98,563.00. The UGA- 3000 produces incremental cash flows of $29,910.00 per year for 9 years and cost $125,776.00. The firm's WACC is 9.39%. What is the equivalent annual annuity of the UGA-3000? Submit Answer format: Currency: Round to: 2 decimal places. unanswered not_submitted

Answer 1

UGA-3000
Discount rate	0.0939
Year	0	1	2	3	4	5	6	7	8	9
Cash flow stream	-125776	29910	29910	29910	29910	29910	29910	29910	29910	29910
Discounting factor	1	1.0939	1.196617	1.30898	1.4318927	1.566347	1.713428	1.874318	2.050317	2.242842
Discounted cash flows project	-125776	27342.54	24995.46	22849.86	20888.436	19095.38	17456.24	15957.8	14587.99	13335.76
NPV = Sum of discounted cash flows
NPV UGA-3000 =	50733.46
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
Equvalent annuity(EAA)=	8596.92
Required rate =	0.0939
Year	0	1	2	3	4	5	6	7	8	9
Cash flow stream	0	8596.92	8596.92	8596.92	8596.9202	8596.92	8596.92	8596.92	8596.92	8596.92
Discounting factor	1	1.0939	1.196617	1.30898	1.4318927	1.566347	1.713428	1.874318	2.050317	2.242842
Discounted cash flows project	0	7858.964	7184.353	6567.65	6003.8856	5488.514	5017.382	4586.692	4192.972	3833.048
Sum of discounted future cashflows =	50733.46
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor