Scotty Manufacturing is considering the replacement of one of its machine tools. Three alternative replacement tools€”A, B, and C€”are under consideration. The cash flows associated with each are shown in the following table. The firm€™s cost of capital is 15%.

a. Calculate the NPV of each alternative.
b. Using NPV, evaluate the acceptability of each tool.
c. Rank the tools from best to worst, using NPV.

Transcribed Image Text:

Year Cash Flows S95,000 $20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 S50,000 $10,000 12,000 13,000 15,000 17,000 21,000 $150,000 S58,000 35,000 23,000 23,000 23,000 35,000 46,000 58,000 3