Question

Unequal liveslong dashANPV 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 machines ---​A, ​B, and C are equally risky. The firm plans to use a cost of capital of 12.8 % to evaluate each of them. The initial investment and annual cash inflows over the life of each machine are shown in the following table.  

Machine A   Machine B   Machine C
Initial investment   $92,100   $64,400   $101,300
Year    Cash inflows  
1 $11,300 $9,500    $30,400
2 11,300 20,900 30,400
3 11,300 30,300 30,400
4 11,300    40,500 30,400
5 11,300 - 30,400
6 11,300 - -

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