The BMW Group is considering the replacement of one of its car-manufacturing robot lines. Three alternative replacement robot lines are under consideration. The relevant cash flows associated with each line are shown in the following table. The firm’s cost of capital is 15%.

a. Calculate the net present value (NPV) of each line.

b. Using NPV, evaluate the acceptability of each line.

c. Rank the lines from best to worst, using NPV.

d. Calculate the profitability index (PI) for each line.

e. Rank the lines from best to worst, using PI.

Transcribed Image Text:

Initial investment (CFO) Year (t) 1 2 3 4 5 679 8 Robot line A - 850,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 Robot line B -600,000 Cash inflows (CF) 120,000 140,000 160,000 180,000 200,000 250,000 Robot line C 1,500,000 800,000 300,000 200,000 200,000 200,000 300,000 400,000 500,000