Machines A and B are mutually exclusive and are expected to produce the following real cash flows:
Cash Flows ($thousands) | ||||
Machine | C0 | C1 | C2 | C3 |
A | –100 | +110 | +121 |
|
B | –120 | +110 | +121 | +133 |
The real opportunity cost of capital is 10%.
a. Calculate the NPV of each machine.
b. Calculate the equivalent annual cash flow from each machine.
c. Which machine should you buy?
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