Evans Industries wishes to select the best of three possible energy-saving devices. Each device will save Evans money on energy bills, but they have different prices, cost savings, and useful lives. The firm plans to use a 12% cost of capital to evaluate each of them. The following table shows the initial investment and annual after-tax cost savings for each device. The company will continue replacing worn-out devices indefinitely. Device 1 Device 2 Device 3 Initial investment (CF0) -$92,000 -$65,000 -$100,500 YEAR (t) Cost savings (CFt) 1 $12,000 $10,000 $30,000

2 12,000 20,000 30,000

3 12,000 30,000 30,000

4 12,000 40,000 30,000

5 12,000 - 30,000

6 12,000 - -

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1. Calculate the NPV for each device over its life. Rank the machines in descending order on the basis of NPV.
2. Use the annualized net present value (ANPV) approach to evaluate and rank the devices in descending order on the basis of ANPV.
3. Compare and contrast your findings in parts a and b. Which device would you recommend that the firm acquire? Why?