Question
Fame Industries is considering the replacement of one of its machines. Several alternatives are under consideration. The relevant cash flows associated with each are shown
Fame Industries is considering the replacement of one of its machines. Several alternatives are under consideration. The relevant cash flows associated with each are shown in the following table. The firms cost of capital is 15%.
Cash inflows | Initial Inv. | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 |
Press A | $106,250 | $22,500 | $22,500 | $22,500 | $22,500 | $22,500 | $22,500 | $22,500 | $22,500 |
Press B | $75,000 | $15,000 | $17,500 | $20,000 | $22,500 | $25,000 | $31,250 |
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Press C | $162,500 | $62,500 | $37,500 | $25,000 | $25,000 | $25,000 | $37,500 | $50,000 | $62,500 |
Calculate the NPV of each machine and evaluate their acceptability based on NPV; rank them from best to worst using NPV.
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