Question: P1010 NPV: Mutually exclusive projects Hook Industries is considering the replacement of one of its old metal stamping machines. Three alternative replacement machines are under
P1010 NPV: Mutually exclusive projects Hook Industries is considering the replacement of one of its old metal stamping machines. Three alternative replacement machines are under consideration. The relevant cash flows associated with each are shown in the following table. The firms cost of capital is 15%.
| Machine A | Machine B | Machine C | |
| Initial investment (CF0) | $85,000 | $60,000 | $130,000 |
| Year (t) | Cash inflows (CFt) | ||
| 1 | $18,000 | $12,000 | $50,000 |
| 2 | 18,000 | 14,000 | 30,000 |
| 3 | 18,000 | 16,000 | 20,000 |
| 4 | 18,000 | 18,000 | 20,000 |
| 5 | 18,000 | 20,000 | 20,000 |
| 6 | 18,000 | 25,000 | 30,000 |
| 7 | 18,000 |
| 40,000 |
| 8 | 18,000 |
| 50,000 |
- Calculate the net present value (NPV) of each press.
- Using NPV, evaluate the acceptability of each press.
- Rank the presses from best to worst, using NPV.
- Calculate the profitability index (PI) for each press.
- Rank the presses from best to worst, using PI.
Step by Step Solution
There are 3 Steps involved in it
1 Expert Approved Answer
Step: 1 Unlock
Question Has Been Solved by an Expert!
Get step-by-step solutions from verified subject matter experts
Step: 2 Unlock
Step: 3 Unlock
Study Help