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 $25,909.00 per year for 8 years and costs $102,649.00. The UGA-3000 produces incremental cash flows of $28,163.00 per year for 9 years and cost $125,136.00. The firm’s WACC is 8.15%. What is the equivalent annual annuity of the GSU-3300?

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#4

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 $26,697.00 per year for 8 years and costs $103,885.00. The UGA-3000 produces incremental cash flows of $29,133.00 per year for 9 years and cost $123,906.00. The firm’s WACC is 8.63%. What is the equivalent annual annuity of the UGA-3000?

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Answer 1

Year GSU - 3300 cash flows pv @ 8.15% -$102,649.00 1 $25,909.00 0.92464 $25,909.00 0.85496 $25,909.00 0.79053 $25,909.00 0.73096 $25,909.00 0.67588 $25,909.00 0.62494 $25,909.00 0.57785 $25,909.00 0.53430 NPV Present value -$102,649.00 $23,956.54 $22,151.22 $20,481.94 $18,938.46 $17,511.29 $16,191.66 $14,971.49 $13,843.26 $45,396.86 PVIFA(8.15%,8) 5.7141 EAA = NPV/PVFIA $7,944.75