P12-14 (similar to)

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Unequal livesANPV approachEvans Industries wishes to select the best of three possible machines, each of which is expected to satisfy the firm's ongoing need for additional aluminum-extrusion capacity. The three machinesA, B, and Care equally risky. The firm plans to use a cost of capital of 11.1% to evaluate each of them. The initial investment and annual cash inflows over the life of each machine are shown in the following table.(Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.)

	Machine A	Machine B	Machine C
Initial investment (CF0)	$93,000	$64,800	$99,500
Year (t )	Cash inflows (CFt)
1	$12,100	$9,100	$30,500
2	12,100	20,000	30,500
3	12,100	29,600	30,500
4	12,100	40,600	30,500
5	12,100		30,500
6	12,100

a. Calculate the NPV for each machine over its life. Rank the machines in descending order on the basis of NPV.

b. Use the annualized net present value (ANPV) approach to evaluate and rank the machines in descending order on the basis of ANPV.

c. Compare and contrast your findings in parts (a) and (b). Which machine would you recommend that the firm acquire?a. The net present value for machine A is $nothing.(Round to the nearest cent.) Enter your answer in the answer box and then click Check Answer.

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