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 $26,919.00 per year for 8 years and costs $100,205.00. The UGA-3000 produces incremental cash flows of $28,885.00 per year for 9 years and cost $126,171.00. The firm's WACC is 7.83% What is the equivalent annual annuity of the GSU-3300? Assume that there are no taxes. Submit Answer format: Currency: Round to: 2 decimal places

Answer 1

F18 X for A B C D E F G H 1 2 Calcualtion of GSU 3300 Equivalent annuity 3 4 Years Cash flows 0 5 6 1 7 2 3 8 9 4 Discount Rate @7.83% Present value -100205 1 -100205 26919 0.9273857 24964.29565 26919 0.860044236 23151.53079 26919 0.797592726 21470.39858 26919 0.739676088 19911.34061 26919 0.685965026 18465.49254 26919 0.636154156 17124.63372 26919 0.589960267 15881.14043 26919 0.547120715 14727.94253 5.783898914 55491.77486 10 5 11 6 12 7 13 8 14 Total 15 16 17 Equivalent Annual Annuity = Net Present Value / Present value annuity factor Equivalent annual annuity = 55491.77486 / 5.7838 Equivalent annual annuity (GSU - 3300) = $9594.181 18 19 20 21

F18 X A B с D E F G 1 2 Calcualtion of GSU 3300 Equivalent annuity 3 4 5 Years In 6 1 Cash flows |-100205 26919 26919 26919 Present value =C5*D5 =C6*D6 =C7*D7 =C8*D8 7 2 8 3 9 4 Discount Rate @7.83% =1/(1+7.83%)^B5 =1/(1+7.83%)^B6 =1/(1+7.83%)^B7 =1/(1+7.83%)^B8 =1/(1+7.83%)^B9 =1/(1+7.83%)^B10 =1/(1+7.83%)^B11 =1/(1+7.83%)^B12 =1/(1+7.83%)^B13 =SUM(D6:013) 26919 26919 =C9*D9 10 5 =C10*010 11 6 26919 26919 =C11*011 =C12012 12 7 8 26919 Total =C13*D13 ESUM(E5:E13) 13 14 15 16 17 18 19 Equivalent Annual Annuity = Net Present Value / Present value annuity factor Equivalent annual annuity = 55491.77486/5.7838 Equivalent annual annuity (GSU - 3300) = $9594.181 20