Question: I do not understand what was done to answer the question below and how it was determined to buy B. Please explain step by step

I do not understand what was done to answer the question below and how it was determined to buy B. Please explain step by step . Thank you

Information about Machine A:

Spend $8000 on s new machine.You think it will provide after tax cash flows of $3500/year for the next 3 years.The cost of funds is 8%.Find the NPV, IRR, and MIRR.Should you buy it?

Question:

Let the machine in #1 be Machine A.An alternative is Machine B.It cost $8000 and will provide after tax inflows of $5000 per year for 2 years.It has the same risk as A.Should you buy A or B?

Answer:

LCM:6

CFMachine AMachine B

CF0-8000-8000

CF135005000

CF235005000-8000= -3000

CF33500 - 8000= -45005000

CF435005000-8000= -3000

CF535005000

CF635005000

RCNPV= 1829.42RCNPV= 2375.45

EAA= 395.73EAA= 513.84

Buy B

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