Question

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:

Initial investment        $85,500           $59,900           $129,500

Year                           

1          $17,500           $11,500           $49,900

2          $17,500           $13,600           $29,700

3          $17,500           $16,000           $20,000

4          $17,500           $17,900           $20,100

5          $17,500           $19,500           $20,500

6          $17,500           $25,200           $30,100

7          $17,500           $0                    $39,500

8          $17,500           $0                     $50,000

The​ firm's cost of capital is 14​%

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

b.  Using​ NPV, evaluate the acceptability of each press.

c.  Rank the presses from best to worst using NPV.

d.  Calculate the profitability index​ (PI) for each press.

e.  Rank the presses from best to worst using PI.

Answer 1