Puddle Enterprises is evaluating the purchase of an elaborate hydraulic lift system for all of its locations to use for the boats brought in for repair. The company has narrowed their choices down to two: the B14 Model and the F54 Model. Financial data about the two choices follows.

	B14 Model	F54 Model
Investment	$330,000	$200,000
Useful life (years)	8	8
Estimated annual net cash inflows for useful life	$70,000	$37,000
Residual value	$20,000	$14,000
Depreciation method	Straight line	Straight line
Required rate of return	16%	8%

Using the net present value model or profitability index, which alternative should the company select?

Present Value of $1

Periods	8%	10%	12%	14%	16%
6	0.630	0.564	0.507	0.456	0.410
7	0.583	0.513	0.452	0.400	0.354
8	0.540	0.467	0.404	0.351	0.305
9	0.500	0.424	0.361	0.308	0.263
10	0.463	0.386	0.322	0.270	0.227

Present Value of Annuity of $1

Periods	8%	10%	12%	14%	16%
6	4.623	4.355	4.111	3.889	3.685
7	5.206	4.868	4.564	4.288	4.039
8	5.747	5.335	4.968	4.639	4.344
9	6.247	5.759	5.328	4.946	4.607
10	6.710	6.145	5.650	5.216	4.833

Question content area bottom

Part 1

A.

The

B14 Model should be selected.

B.

Neither investment should be selected.

C.

The

F54 Model should be selected.

D.

Both investments should be selected.