JBL Co. has designed a new conveyor system. Management must choose among three alternative courses of action: (1) The firm can sell the design outright to another corporation with payment over

22

years. (2) It can license the design to another manufacturer for a period of

55

years, its likely product life. (3) It can manufacture and market the system itself; this alternative will result in

66

years of cash inflows. The company has a cost of capital of

11.6 %11.6%.

Cash flows associated with each alternative are as shown in the following table.(Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.)

Alternative	Sell	License	Manufacture
Initial investment (CF 0CF0)	$200 comma 700200,700	$200 comma 900200,900	$449 comma 000449,000
Year (tt )	Cash inflows (CF Subscript tCFt)
1	$200 comma 300200,300	$250 comma 900250,900	$200 comma 600200,600
2	251 comma 000251,000	99 comma 30099,300	255 comma 000255,000
3	long dash	80 comma 50080,500	200 comma 600200,600
4	long dash	59 comma 60059,600	200 comma 600200,600
5	long dash	40 comma 60040,600	200 comma 600200,600
6	long dash	long dash	200 comma 600200,600

a. Calculate the net present value of each alternative and rank the alternatives on the basis of NPV.

b. Calculate the annualized net present value (ANPV) of each alternative and rank them accordingly.

c.Why is ANPV preferred over NPV when ranking projects with unequal lives?