There are two questions below that I need answered. Thank you so much for your h

Question

There are two questions below that I need answered. Thank you so much for your help!

1. Hook industries is considering the replacement of one of its old drill presses. Three alternative replacement presses are under consideration. The relevant cash flows associated with each are shown in the following table. The firm’s cost of capital is 15%.

Initial Investment

Press A

Press B

Press C

$84,500

$60,200

$129,600

Year (t)

Cash Inflows

1

$17,900

$12,000

$50,300

2

$17,900

$13,700

$29,600

3

$17,900

$15,900

$20,500

4

$17,900

$18,200

$20,100

5

$17,900

$20,400

$20,300

6

$17,900

$24,600

$29,500

7

$17,900

-

$39,500

8

$17,900

-

$50,200

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.

2. Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the firm’s warehouse capacity. The relevant cash flows for the projects are shown in the following table. The firms cost of capital is 17%.

Initial Investment

Project X

Project Y

$500,000

$280,000

Year (t)

Cash Inflows

1

$100,000

$120,000

2

$160,000

$120,000

3

$150,000

$85,000

4

$210,000

$50,000

5

$250,000

$30,000

a.??Calculate the IRR for each of the projects. Assess the acceptability of each project on the basis of the IRRs.

b.??Which project is? preferred?

Initial Investment

Press A

Press B

Press C

$84,500

$60,200

$129,600

Year (t)

Cash Inflows

1

$17,900

$12,000

$50,300

2

$17,900

$13,700

$29,600

3

$17,900

$15,900

$20,500

4

$17,900

$18,200

$20,100

5

$17,900

$20,400

$20,300

6

$17,900

$24,600

$29,500

7

$17,900

-

$39,500

8

$17,900

-

$50,200

Explanation / Answer

Cost of Capital = 15%

Initial Investment Press A Press B Press C $84,500 $60,200 $129,600 Year (t) Cash Inflows 1 $17,900 $12,000 $50,300 2 $17,900 $13,700 $29,600 3 $17,900 $15,900 $20,500 4 $17,900 $18,200 $20,100 5 $17,900 $20,400 $20,300 6 $17,900 $24,600 $29,500 7 $17,900 - $39,500 8 $17,900 - $50,200 a) NPV= -4176.95 2232.03 15598.64 NPV calculation using Excel function = NPV(Discount rate, all cash flows) b) Acceptability SINCE NPV<0 Since NPV>0 Since NPV>0 Not Acceptable Acceptable Acceptable c) Based on NPV Rank 3 Rank 2 Rank 1 d) Profitability Index ($0.05) $0.04 $0.12 Profitability Index = NPV/Initial Investment e) Based On PI Rank 3 Rank 2 Rank 1 nitial Investment Project X Project Y ($500,000) ($280,000) Year (t)1 $100,000 $120,000 2 $160,000 $120,000 3 $150,000 $85,000 4 $210,000 $50,000 5 $250,000 $30,000 IRR 19% 18% IRR using excel Function = IRR(All cash flows) Based on iRR Project X is preferred over Project Y

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