Question

Unequal

liveslong dash—ANPV

approach   Evans Industries wishes to select the best of three possible​ machines, each of which is expected to satisfy the​ firm's ongoing need for additional​ aluminum-extrusion capacity. The three

machineslong dash—​A,

​B, and

Clong dash—are

equally risky. The firm plans to use a cost of capital of %12.4

to evaluate each of them. The initial investment and annual cash inflows over the life of each machine are shown in the following table.  ​(Click on the icon located on the​ top-right corner of the data table below in order to copy its contents into a​ spreadsheet.)

	Machine A	Machine B	Machine C
Initial investment ​(CF 0CF0​)	​92,600	64,400	99,900
Year ​(tt ​)	Cash inflows ​(CF Subscript tCFt​)
1	​$11,700	​$10,500	​$30,800
2	11,700	20,700	30,800
3	11,700	30,600	30,800
4	11,700	39,600	30,800
5	11,700	long dash—	30,800
6	11,700	long dash—	long dash—

a. Calculate the NPV for each machine over its life. Rank the machines in descending order on the basis of NPV.

b. Use the annualized net present value​ (ANPV) approach to evaluate and rank the machines in descending order on the basis of ANPV.

c. Compare and contrast your findings in parts

​(a​)

and

​(b​).

Which machine would you recommend that the firm​ acquire?

Answer 1