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Strikes and Spares Bowling Alley is considering two different pinsetters during their remodeling: Brunswick GS-X and AMF Edge String Projected annual revenues, annual costs, capital
Strikes and Spares Bowling Alley is considering two different pinsetters during their remodeling: Brunswick GS-X and AMF Edge String Projected annual revenues, annual costs, capital outlays, and projected life for each pinsetter-- in after-tax cash flows--are as follows: Annual revenues Annual operating costs System investment Projected life Guaranteed league handicap improvement Brunswick GS-X $ 720,000 $ 445,000 $ 900,000 5 years AMF Edge String $ 900,000 $ 655,000 $ 800,000 5 years +15 pins +15 pins Assume cost of capital for Strikes and Spares Bowling Alley is 8% A.) Calculate the net present value for the Brunswick GS-X pinsetter. 3 points. Hint--consider annual cash flows and discount appropriately. B.) Calculate the net present value for the AMF Edge String pinsetter. 3 points C.) Which pinsetter would you recommend before the bowling alley's management? 2 points D.) Strikes and Spares' CFO is wondering why internal rate of return wasn't used to make a decision. You calculated IRR to be 16% for both projects. Explain why, according to NPV, the decision is not indifferent. 2 points
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