Question

Coiner Clothes Inc. is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: (a) Machine 190-3, which has a cost of $190000, a 3-year expected life, and after tax cash inflows of $87000 per year and (b) Machine 360-6, which has a cost of $360000, a 6-year life, and after tax cash inflows of $98300 per year. Assume that both projects can be repeated and that there are no anticipated changes in the cash flows. Coiner required a return of 14% for the investment. Using the replacement chain and EAA approaches, which model should be selected?

Answer 1

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