Question

NPVlong dash—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​ firm's cost of capital is 13​%.

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.

Machine A	Machine B	Machine C
Initial investment ​(CF 0CF0​)	​$84,600	​$60,500		​$130,000
Year​ (t)	Cash inflows ​(CF Subscript tCFt​)
1	​$18,200	​$11,600	​$50,400
2	​$18,200	​$13,500	​$30,000
3	​$18,200	​$15,700	​$19,500
4	​$18,200	​$18,100	​$19,600
5	​$18,200	​$20,400	​$19,800
6	​$18,200	​$24,700	​$29,800
7	​$18,200		​$40,200
8	​$18,200		​$50,200

Answer 1