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Unequal lives--ANPV approach    Evans Industries wishes to select the best of three possible​ machines, each of...

Unequal lives--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 machines--A, ​B, and C--are equally risky. The firm plans to use a cost of capital of 11.2 % to evaluate each of them. The initial investment and annual cash inflows over the life of each machine are shown in the following table.

Initial investment

​(CF0​)

​$91,400  

​$64,900  

​ $100,900  

Year

​(t ​)

Cash inflows

​(CFt​)

1

​$11,000

​$9,900

​$30,400

2

11,000

19,400

30,400

3

11,000

29,300

30,400

4

11,000

39,200

30,400

5

11,000

 —

30,400

6

11,000

 ---

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?

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