Question: Machines A and B are mutually exclusive and are expected to produce the following real cash flows: Cash flows in thousands Machine C0 C1 C2

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

Cash flows in thousands

Machine C0 C1 C2 C3
A -100 110 121
B -120 110 121 133

The real cost of capital is 10%

Calculate the NPV of each machine. Calculate the annual equivalent of each machine. What machine should you buy?

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