Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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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
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