Mills Corp

Multiple Choice

Mills Corp.is considering two mutually exclusive machines.Machine A requires an up-front expenditure at t = 0 of $450,000,has an expected life of two years,and will generate positive after-tax cash flows of $350,000 per year (all cash flows are realized at the end of the year) for two years.At the end of two years,the machine will have zero salvage value,but every two years the company can purchase a replacement machine with the same cost and identical cash inflows.​Alternatively,it can choose Machine B,which requires an expenditure of $1 million at t = 0,has an expected life of four years,and will generate positive after-tax cash flows of $350,000 per year (all cash flows are realized at year-end) .At the end of four years,Machine B will have an after-tax salvage value of $100,000.​The cost of capital is 10%.What is the NPV (on an extended four-year life) of the better machine?

A) $157,438
B) $177,754
C) $287,552
D) $355,508