ANPV approach Porter & Sons is evaluating three different machines to be used in its workshop to
Question:
ANPV approach 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.
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta