Question: Machines A, B, C, and D are mutually exclusive are expected to produce real cash flows with the real opportunity cost of capital is 12%.

Machines A, B, C, and D are mutually exclusive are expected to produce real cash flows with the real opportunity cost of capital is 12%.

Machine A

Year 0 = -$1,000

Year 1 = $1,100

Year 2 = $1,210

Machine B

Year 0 = -$1,200

Year 1 = $1,100

Year 2 = $1,210

Year 3 = $1,330

Machine 4

Year 0 = -$5000

Year 1 = $0

Year 2 = $500

Year 3 = $1,000

Year 4 = $2,000

Year 5 = $3,000

Machine D

Year 0 = -$6,000

Year 1 = $500

Year 2 = $1,000

Year 3 = $2,000

Year 4 = $3,000

Year 5 = $4,000

a. Calculate the NPV of each machine

b. Calculate the equivalent annual cash flows for each machine

c. As the machines are mutually exclusive, which machine should you buy?

d. If the machines are independent, which machine(s) should you buy?

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