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 12.7% 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 91,500 64,100 100,300 Year Cash inflows 1 12,600 9,200 29,100 2 12,600 19,000 29,100 3 12,600 29,400 29,100 4 12,600 40,200 29,100 5 12,600 - 29,100 6 12,600 - - 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?
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 12.7% to evaluate each of them. The initial investment and annual
Machine A Machine B Machine C
Initial investment 91,500 64,100 100,300
Year Cash inflows
1 12,600 9,200 29,100
2 12,600 19,000 29,100
3 12,600 29,400 29,100
4 12,600 40,200 29,100
5 12,600 - 29,100
6 12,600 - -
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