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# FM11 20 - 11-17 0 1 2 3 4 5 6 7 8 A | | | | | | | | |-10 4...

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Unformatted text preview: 11-17 0 1 2 3 4 5 6 7 8 A: | | | | | | | | | -10 4 4 4 4 4 4 4 4 -10-6Answers and Solutions:11 - 20Machine A's simple NPV is calculated as follows: Enter CF= -10 and CF1-4= 4. Then enter I = 10, and press the NPV key to get NPVA= \$2.679 million. However, this does not consider the fact that the project can be repeated again. Enter these values into the cash flow register: CF= -10; CF1-3= 4; CF4= -6; CF5-8= 4. Then enter I = 10, and press the NPV key to get Extended NPVA= \$4.5096 ≈\$4.51 million. 0 1 2 3 4 5 6 7 8 B:| | | | | | | | | -15 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 Enter these cash flows into the cash flow register, along with the interest rate, and press the NPV key to get NPVB= \$3.672 ≈\$3.67 million. Machine A is the better project and will increase the company's value by \$4.51 million. The EAA of machine A is found by first finding the PV: N = 4, I/YR = 10, PMT = 4, FV = 0; solve for PV = −12.679. The NPV is \$12.679 −\$10 = \$2.679 million....
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