Question: Machine C was purchased five years ago for $200,000 and produces an annual real cash flow of $80,000. It has no salvage value but is

Machine C was purchased five years ago for $200,000 and produces an annual real cash flow of $80,000. It has no salvage value but is expected to last another five years. The company can replace machine C with machine B (see Problem 8) either now or at the end of five years. Which should it do?

Problem 8

Machines A and B are mutually exclusive and are expected to produce the following real cash flows

Machine C was purchased five years ago for $200,000 and

The real opportunity cost of capital is 10%.

Cash Flows ($ thousands) Machine -100 +110 +121 -120 +110 2 +133

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