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Davis Industries is considering two alternative machines. Machine A has an expected life of 4 years,...

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Finance

Davis Industries is considering two alternative machines.Machine A has an expected life of 4 years, will cost $10 million,and will produce net cash flows of $3 million per year. Machine Bhas a life of 10 years, will cost $13 million, and will produce netcash flows of $2.5 million per year. Inflation in operation costs,machine costs is expected to be zero, and the company’s cost ofcapital is 10. Which machine should Davis Industries select?

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Evaluation of Investment proposal using NPV Decision Rule As per NPV Decision Rule the Project should be accepted only if the NPV is Positive else Reject the Project Net Present Value NPV of MACHINEA Year Annual Cash flow in Million    See Answer
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Davis Industries is considering two alternative machines.Machine A has an expected life of 4 years, will cost $10 million,and will produce net cash flows of $3 million per year. Machine Bhas a life of 10 years, will cost $13 million, and will produce netcash flows of $2.5 million per year. Inflation in operation costs,machine costs is expected to be zero, and the company’s cost ofcapital is 10. Which machine should Davis Industries select?

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