A manufacturing company is considering two alternatives for a critical piece of equipment. The alternative A would entail buying a machine that is cheaper, but lasts for only 4 years. The alternative B would entail buying a machine that is more expensive, but lasts for 6 years. Either machine would be purchased with cash payment in full in year 0. Operating and maintenance costs do not differ across two alternatives, and both machine contribute equally to the product output. Salvage value at the end of machine life is zero. How would the manager determine which option is better? a)Option A is better, because NPV (i.e. purchase price) is lower. b)Planning horizons need to be equalized, so we would compare NPV of three purchase cycles of machine A (12 years), vs. NPV of two purchase cycles of machine B (12 years).

If a farm manager is primarily concerned about how quickly they will recoup an investment, which method of investment analysis would they want to focus on? a)Simple rate-of-return b)Payback period c)Internal rate-of-return d)Net present value

When investments are risky, typically investments with higher NPV also have higher standard deviation of NPV. How would an entrepreneur decide between several risk investment alternatives, each of which have positive expected net present value? a)The investment with the highest expected NPV will always be the one chosen. b)The investment with the lowest coefficient of variation will always be the one chosen. Different investors may find different investments to be best suited for them, due to the differences in their affinity or tolerance for risk