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    mspriss80's Avatar
    mspriss80 Posts: 1, Reputation: 1
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    #1

    Oct 26, 2012, 04:49 PM
    Capital Budgeting exercise
    Answer also requested in Excel

    Mercil Corporation is going to buy one of the following two machines. Each machine meets the specifications for a particular task in the company. Mercil's tax rate is 30 percent and its cost of capital is 15 percent. Which machine should Mercil buy and why? LO3
    Machine A: Costs $90,000 to acquire and $12,000 cash a year to operate in each year of its 10-year life. Annual depreciation is $9,000, and the machine has no salvage value.
    Machine B: Costs $50,000 to acquire and $24,600 a year to operate in each year of its 10-year life. Annual depreciation is $5,000, and the machine has no salvage value.
    paraclete's Avatar
    paraclete Posts: 2,706, Reputation: 173
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    #2

    Oct 26, 2012, 05:29 PM
    a little self evident here,

    what you do is determine the cash flows and the present value of those cash flows using the cost of capital
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