*It says for EACH, so please do A, B, and C if possible . Thank you so much (: N

Question

*It says for EACH, so please do A, B, and C if possible . Thank you so much (:

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 15% 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 Pl a. The NPV of press A is S(Round to the nearest cent.) Data Table (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 $85,000 Machine B $60,000 Cash inflows (CFt) $12,000 $14,000 $16,000 $18,000 $20,000 $25,000 MachineC $130,000 Initial investment (CFo) Year (t) $18,000 $18,000 $18,000 $18,000 $18,000 $18,000 $18,000 $18,000 $50,000 $30,000 $20,000 $20,000 $20,000 $30,000 $40,000 $50,000 4 Check Answer

Explanation / Answer

a) NPV: MACHINE A: Year Cash flow PVIF at 15% PV at 15% 1 18000 0.86957 15652 2 18000 0.75614 13611 3 18000 0.65752 11835 4 18000 0.57175 10292 5 18000 0.49718 8949 6 18000 0.43233 7782 7 18000 0.37594 6767 8 18000 0.32690 5884 80772 NPV = 80772-85000 = $   -4,228.00 MACHINE B: Year Cash flow PVIF at 15% PV at 15% 1 12000 0.86957 10435 2 14000 0.75614 10586 3 16000 0.65752 10520 4 18000 0.57175 10292 5 20000 0.49718 9944 6 25000 0.43233 10808 7 0.37594 0 8 0.32690 0 62584 NPV = 62584-60000 = $           2,584 MACHINEC: Year Cash flow PVIF at 15% PV at 15% 1 50000 0.86957 43478 2 30000 0.75614 22684 3 20000 0.65752 13150 4 20000 0.57175 11435 5 20000 0.49718 9944 6 30000 0.43233 12970 7 40000 0.37594 15037 8 50000 0.32690 16345 145044 NPV = 145044-130000 = $        15,044 b) All projects with positive NPV are acceptable. Hence, Projects B & C are acceptable; Project A is to be rejected. c) Projects are to be ranked in the descending order of NPV. Hence, the ranks would be: Rank Project C I Project B II Project A Rejected d) Profitability index = PV of cash inflows/Initial investment. PV of cash inflows Initial investment PI Project A 80772 85000 0.95 Project B 62584 60000 1.04 Project C 145044 130000 1.12 e) Projects are to be ranked in the descending order of PI. Hence, the ranks would be: Rank Project C I Project B II Project A Rejected

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