Table: Press A Press B Press C Initial investment $84,500 $59,800 $129,800 Year
ID: 2766222 • Letter: T
Question
Table:
Press A Press B Press C Initial investment $84,500 $59,800 $129,800 Year Cash inflows 1 $18,000 $11,500 $49,800 2 $18,000 $14,200 $29,700 3 $18,000 $16,400 $19,700 4 $18,000 $18,000 $19,500 5 $18,000 $20,100 $19,800 6 $18,000 $25,400 $30,300 7 $18,000 $0 $39,700 8 $18,000 $0 $49,900 NPV-Mutually exclusive projects Hook Industries is considering the replacement of one of its old drill presses. Three alternative replacement presses are under consideration. The relevant cash flows associated with each are shown in the following table:E firm's cost of capital is 14%. dobThe The a. Calculate the net present value (NPV) of each press. b. Using NPV, evaluate the acceptability of each press c. Rank the presses from best to worst using NPV. d. Calculate the profitability index (PI) for each press. e. Rank the presses from best to worst using PI.Explanation / Answer
a. Table showing NPV of each press ($)
b. On the basis of NPV a project is accepted if NPV is greater than zero. Considering this criteria Press B and C should be accepted.
c. Ranking best to worse:
1. Press C
2. Press B
3. Press C
d. Profitability Index = PV of cash inflows/ Initial Investment
Press A = 83499.55 / 84500 = 0.988
Press B = 64752.34 / 59800 = 1.0828
Press C = 148826.17 / 129800 = 1.1466
e. Ranking best to worse (the higher the better):
1. Press C
2. Press B
3. Press C
Year Press A Press B Press C PV Factor @ 14% PV Press A PV Press B PV Press C 0 -84500 -59800 -129800 1 -84500 -59800 -129800 1 18000 11500 49800 0.8772 15789.47 10087.72 43684.21 2 18000 14200 29700 0.7695 13850.42 10926.44 22853.19 3 18000 16400 19700 0.6750 12149.49 11069.53 13296.94 4 18000 18000 19500 0.5921 10657.44 10657.44 11545.57 5 18000 20100 19800 0.5194 9348.64 10439.31 10283.50 6 18000 25400 30300 0.4556 8200.56 11571.90 13804.27 7 18000 0 39700 0.3996 7193.47 0.00 15865.60 8 18000 0 49900 0.3506 6310.06 0.00 17492.90 Net Present Value -1000.4499 4952.3445 19026.1709Related Questions
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