Mike Mulligan, CEO of Mulligan Excavation Inc, needs to replace Mary Anne, his old steam-driven shovel. Mike is looking at two hydraulic excavators: a Caterpillar and a Zoomlion. The Caterpillar, because of its superior quality, is expected to last one year longer than the Zoomlion, but it also costs more. Mike has produced estimates (in the table below) of the purchase price of each excavator and the associated after-tax cash flows that he expects to earn. Mikes cost of capital is 10%. Using the replacement chain approach, answer the following questions to calculate the NPV of each chain and decide which excavator Mike should choose.

Cash flows for Hydraulic Excavators By Model Time

Zoomlion Caterpillar

0 -95 -135

1 65 65

2 65 65

3 65

Question 1 What is the NPV of the Zoomlion chain? (Round your answer to two decimal places.)

Question 2 What is the NPV of the Caterpillar chain? (Round your answer to two decimal places.)

Question 3 Which excavator should Mike select?