Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
Unequal lives: ANPV approach Porter & Sons wishes to select the best of three possible machines, each of which can be used in the firm's workshop to polish marble
Unequal lives: ANPV approach Porter & Sons wishes to select the best of three possible machines, each of which can be used in the firm's workshop to polish marble. All three machines — A, B, and C — are equally risky. The firm plans to use a 15% cost of capital 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 (CF0) — $85,000 — $68,000 — $98,500
Year (t) Cash inflows
1 $27,000 $23,000 $35,000
2 27,000 33,000 35,000
3 27,000 33,000 35,000
4 27,000 33,000 35,000
5 27,000 — 35,000
6 27,000 — —
a) Calculate the NPV for each machine over its life. Rank them in their order of acceptance on the basis of the NPV.
b) Use the annualized net present value (ANPV) approach to evaluate and rank the machines in descending order on the basis of the ANPV.
c Based on your findings in parts a and b, which machine would you recommend that Porter & Sons acquire? Why?
Expert Solution
a). NPV of machine A = $17,181.03
Machine B = $17,518.63
Machine C = $18,825.43
b). ANPV of machine A = $4,539.86
Machine B = $6,136.17
Machine C = $5,615.92
c). Since, the ANPV for machine B is highest so the machine C should be accepted. We should be accepted the project on the basis of ANPV because the ANPV is a better measure for making decision.
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
