Evans Industries wishes to select the best of three possible machines, each of which is expected to

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Evans Industries wishes to select the best of three possible machines, each of which is expected to satisfy the firm€™s ongoing need for additional aluminum-extrusion capacity. The three machines€”A, B, and C€”are equally risky. The firm plans to use a 12% cost of capital to evaluate each of them. The initial investment and annual cash inflows over the life of each machine are shown in the following table.

Evans Industries wishes to select the best of three possible

a. Calculate the NPV for each machine over its life. Rank the machines in descending order on the basis of NPV.
b. Use the annualized net present value (ANPV) approach to evaluate and rank the machines in descending order on the basis of ANPV.
c. Compare and contrast your findings in parts a and b. Which machine would you recommend that the firm acquire?Why?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Related Book For  answer-question

Principles Of Managerial Finance

ISBN: 978-0136119463

13th Edition

Authors: Lawrence J. Gitman, Chad J. Zutter

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