JBL Co. is replacing worn out equipment and has three options to choose from that are different in terms of their cash flows and their useful lives. The company will continue to replace equipment whenever necessary to keep operations going indefinitely. The company has a cost of capital of 12%. Cash flows associated with each alternative are as presented in the following table. Alternative Sell License manufacture Initial Investment (CF0) ) -$200,000 -$250,000 -$450,000

YEAR(t) cash flows (CF_t)

1 $200,000 $250,000 $200,000

2 250,000 100,000 250,000

3 - 80,000 200,000

4 - 60,000 200,000

5 - 40,000 200,000

6 - - 200,000

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1. Calculate the net present value of each alternative and rank the alternatives on the basis of NPV.
2. Calculate the annualized net present value (ANPV) of each alternative, and rank them accordingly.
3. Why is ANPV preferred over NPV when ranking projects with unequal lives?