NPV—Mutually exclusive projects Hook Industries is considering the replacement of one of its old metal stamping machines. Three alternative replacement machines are under consideration. The relevant cash flows associated with each are shown in the following table: LOADING... . The firm's cost of capital is 12%. a. Calculate the net present value (NPV) of each press. b. Using NPV, evaluate the acceptability of each press. c. Rank the presses from best to worst using NPV. d. Calculate the profitability index (PI) for each press. e. Rank the presses from best to worst using PI. a. The NPV of press A is . (Round to the nearest cent.) The NPV of press B is . (Round to the nearest cent.) The NPV of press C is . (Round to the nearest cent.) b. Based on NPV, Hook Industries should press A. (Select from the drop-down menu.) Based on NPV, Hook Industries should accept accept reject press B. (Select from the drop-down menu.) Based on NPV, Hook Industries should accept reject accept press C. (Select from the drop-down menu.) c. In ranking the presses from best to worst, Press C Press C Press A Press B is the number 1 investment. (Select from the drop-down menu.) Press B Press A Press C Press B is the number 2 investment. (Select from the drop-down menu.) Press A Press C Press A Press B is the number 3 investment. (Select from the drop-down menu.) d. The PI of press A is nothing. (Round to two decimal places.) The PI of press B is nothing. (Round to two decimal places.) The PI of press C is nothing. (Round to two decimal places.) e. In ranking the presses from best to worst, ▼ Press C Press A Press B is the number 1 investment. (Select from the drop-down menu.) ▼ Press A Press B Press C is the number 2 investment. (Select from the drop-down menu.) ▼ Press B Press C Press A is the number 3 investment. (Select from the drop-down menu.) (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 (CF0) $85,200 $60,300 $130,300 Year (t) Cash inflows (CFt) 1 $17,600 $12,300 $50,200 2 $17,600 $14,400 $29,800 3 $17,600 $16,000 $19,900 4 $17,600 $18,500 $20,500 5 $17,600 $19,800 $19,900 6 $17,600 $24,900 $30,400 7 $17,600 — $40,500 8 $17,600 — $50,100

NPV—Mutually exclusive projects Hook Industries is considering the replacement of one of its old metal stamping machines. Three alternative replacement machines are under consideration. The relevant cash flows associated with each are shown in the following table: LOADING... . The firm's cost of capital is 12%. a. Calculate the net present value (NPV) of each press. b. Using NPV, evaluate the acceptability of each press. c. Rank the presses from best to worst using NPV. d. Calculate the profitability index (PI) for each press. e. Rank the presses from best to worst using PI. a. The NPV of press A is . (Round to the nearest cent.) The NPV of press B is . (Round to the nearest cent.) The NPV of press C is . (Round to the nearest cent.) b. Based on NPV, Hook Industries should press A. (Select from the drop-down menu.) Based on NPV, Hook Industries should accept accept reject press B. (Select from the drop-down menu.) Based on NPV, Hook Industries should accept reject accept press C. (Select from the drop-down menu.) c. In ranking the presses from best to worst, Press C Press C Press A Press B is the number 1 investment. (Select from the drop-down menu.) Press B Press A Press C Press B is the number 2 investment. (Select from the drop-down menu.) Press A Press C Press A Press B is the number 3 investment. (Select from the drop-down menu.) d. The PI of press A is nothing. (Round to two decimal places.) The PI of press B is nothing. (Round to two decimal places.) The PI of press C is nothing. (Round to two decimal places.) e. In ranking the presses from best to worst, ▼ Press C Press A Press B is the number 1 investment. (Select from the drop-down menu.) ▼ Press A Press B Press C is the number 2 investment. (Select from the drop-down menu.) ▼ Press B Press C Press A is the number 3 investment. (Select from the drop-down menu.) (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 (CF0) $85,200 $60,300 $130,300 Year (t) Cash inflows (CFt) 1 $17,600 $12,300 $50,200 2 $17,600 $14,400 $29,800 3 $17,600 $16,000 $19,900 4 $17,600 $18,500 $20,500 5 $17,600 $19,800 $19,900 6 $17,600 $24,900 $30,400 7 $17,600 — $40,500 8 $17,600 — $50,100

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 4PA: Net present value method, internal rate of return method, and analysis for a service company The...

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Question

NPV—Mutually

exclusive projects Hook Industries is considering the replacement of one of its old metal stamping machines. Three alternative replacement machines are under consideration. The relevant cash flows associated with each are shown in the following table:

The firm's cost of capital is

12%.

a. Calculate the net present value

(NPV)

of each press.

b. Using NPV, evaluate the acceptability of each press.

c. Rank the presses from best to worst using NPV.

d. Calculate the profitability index (PI) for each press.

e. Rank the presses from best to worst using PI.

a. The NPV of press A is

(Round to the nearest cent.)

The NPV of press B is

(Round to the nearest cent.)

The NPV of press C is

(Round to the nearest cent.)

b. Based on NPV, Hook Industries should
press A. (Select from the drop-down menu.)

Based on NPV, Hook Industries should

reject

press B. (Select from the drop-down menu.)

Based on NPV, Hook Industries should

reject

press C. (Select from the drop-down menu.)

c. In ranking the presses from best to worst,

Press C

Press A

Press B

is the number 1 investment. (Select from the drop-down menu.)

Press B

Press A

Press C

Press B

is the number 2 investment. (Select from the drop-down menu.)

Press A

Press C

Press A

Press B

is the number 3 investment. (Select from the drop-down menu.)

d. The PI of press A is

nothing.

(Round to two decimal places.)

The PI of press B is

nothing.

(Round to two decimal places.)

The PI of press C is

nothing.

(Round to two decimal places.)

e. In ranking the presses from best to worst,

▼

Press C

Press A

Press B

is the number 1 investment. (Select from the drop-down menu.)

▼

Press A

Press B

Press C

is the number 2 investment. (Select from the drop-down menu.)

▼

Press B

Press C

Press A

is the number 3 investment. (Select from the drop-down menu.)

(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 (CF0)	$85,200	$60,300	$130,300
Year (t)	Cash inflows (CFt)
1	$17,600	$12,300	$50,200
2	$17,600	$14,400	$29,800
3	$17,600	$16,000	$19,900
4	$17,600	$18,500	$20,500
5	$17,600	$19,800	$19,900
6	$17,600	$24,900	$30,400
7	$17,600	—	$40,500
8	$17,600	—	$50,100

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