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Evaluate the after-tax cash flows for both alternatives

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Reference no: EM132761486

A company wants to purchase a new macchine for widget production.

1.The machine A for Widgets is 260,000 USD and has a 3-year life, annual cash operating costs without deprec. is 64,000 a year. an alternative machine widget B is 450,000 USD with a 5 -ear life an the annual cash for the operating is 35,000 per year. Both A and B machines have a straight-line depreciation. Teh resulting book value will be 0 for both machines, The salvage value is 10% of the purchase price, meaning this is the estimated market valuue, tax rate is 30% and the cost of capital is 10%.

Problem 1: Evaluate the after-tax cash flows for both alternatives and find the best alternative by considering equivalent annuities (more precisely equivalent annual cost, EAC).

Reference no: EM132761486

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