Unequal Lives The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will
produce a product it will need for the foreseeable future. Machine A costs $8 million but realizes after-tax
inflows of $4.5 million per year for 4 years. After 4 years, the machine must be replaced. Machine B costs
$17 million and realizes after-tax inflows of $4 million per year for 8 years, after which it must be replaced.
Assume that machine prices are not expected to rise because inflation will be offset by cheaper components
used in the machines. The cost of capital is 13%. Using the replacement chain approach to project analysis,
by how much would the value of the company increase if it accepted the better machine? Do not round
intermediate calculations. Enter your answer in millions. For example, an answer of $1.23 million should be
entered as 1.23, not 1,230,000. Round your answer to two decimal places.
5.39 million
What is the equivalent annual annuity for each machine? Do not round intermediate calculations. Enter your
answers in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000
Round your answers to two decimal places.
$
Machine A: $
million
Machine B: S
million

Risk is the risk of a decline in a bond's value due to an increase in interest rates. this risk is higher on bonds that have long maturities than on bonds that will mature in the near future. risk is the risk that a decline in interest rates will lead to a decline in income from a bond portfolio. this risk is obviously high on callable bonds. it is also high on short-term bonds because the shorter the bond's maturity, the fewer the years before the relatively high old-coupon bonds will be replaced with new low-coupon issues. which type of risk is more relevant to an investor depends on the investor's , which is the period of time an investor plans to hold a particular investment. longer maturity bonds have high risk but low risk, while higher coupon bonds have a higher level of risk and a lower level of risk. to account for the effects related to both a bond's maturity and coupon, many analysts focus on a measure called , which is the weighted average of the time it takes to receive each of the bond's cash flows. conceptual question: which of the following bonds would have the largest duration? a)10year-zero coupon bonds b)10year-7% annual coupon bonds c)10year-3% annual coupon bonds d)5year-3% annual coupon bonds e)3year-7% annual coupon bonds