Porter & Sons is evaluating three different machines to be used in its workshop to polish marble.
Question:
Porter & Sons is evaluating three different machines to be used in its workshop to polish marble. All three of the machines are equally risky. The cost of capital of Porter & Sons is 15%. The initial investment and annual cash inflows over the life of each machine are shown in the following table.
a. Calculate the net present value (NPV) for each of the machines, and rank the three on the basis of the NPV in order of acceptance.
b. Calculate the annualized net present value (ANPV) for each of the machines, and rank the three on the basis of the ANPV in order of acceptance.
c. Based on your calculations in parts a and b, which machine should Porter & Sons invest in? Explain your choice.
Step by Step Answer:
Principles Of Managerial Finance
ISBN: 9781292018201
14th Global Edition
Authors: Lawrence J. Gitman, Chad J. Zutter