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Projects is currently evaluating two new aluminum cutting machines with the intention of purchasing one of them. The economists estimated

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Projects is currently evaluating two new aluminum cutting machines with the intention of purchasing one of them. The economists estimated the pessimistic, most likely, and optimistic cash inflows for the two machines, which are shown in the following table. Both machines have 12-year lives.

a. Determine the range of the annual cash inflows for each of the two machines.
b. Aluminum Projects has a cost of capital of 10%. Construct a table with the NPVs for each of the two machines. Include the range of NPVs for each machine.
c. Based on the range of the cash flows and the NPVs of each machine, which machine should be acquired?
d. In which machine should Aluminium Projects invest if the company is not willing to take risks? Why?

Transcribed Image Text:

Initial investment (CF) Outcome Pessimistic Most likely Optimistic Machine A $5,000 Annual cash inflows (CF) $ 550 950 1,350 Machine B $5,500 $ 850 1,050 1,200

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a To determine the range of annual cash inflows for each of the two machines we can calculate the difference between the optimistic and pessimistic ca…View the full answer


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Principles Of Managerial Finance

Principles Of Managerial Finance

ISBN: 9781292018201

14th Global Edition

Authors: Lawrence J. Gitman, Chad J. Zutter

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Question Details
Chapter # 12- Risk and Refinements in Capital Budgeting
Section: Problem
Problem: 4
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Question Posted: September 16, 2023 02:26:49
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