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 Year0 Year1 Year2 Year3 Year4 Year5
A -$1,000 $1,100 $1,210
B -$1,200 $1,100 $1,210 $1,330
C -5,000 $0 $500 $1,000 $2,000 $3,000
D -$6,000 $500 $1,000 $2,000 $3,000 $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?