The Sunshine Corporation has to make a choice between two different solutions to its current production bottleneck. It can purchase the Superduper Model XT, which is more expensive but will have a useful life of 6 years, or it can purchase the Mediocre Model UX, which is less expensive but will only have a useful life of 3 years. The company requires a 10 percent rate of return on its investments.

The Superduper's cash flows are: Yr0 = -75, Yr1 = 10, Yr2 = 15, Yr3 = 25, Yr4 = 30, Yr5 = 25, Yr6 = 20.

The Mediocre's cash flows are: Yr0 = -50, Yr1 = 25, Yr2 = 30, Yr3 = 13.

Using the replacement chain method, which of these two alternatives is better?

A. The Superduper generates an NPV of 12.85, whereas two Mediocre machines strung together to match the 6-year useful life of the alternative will generate an NPV of 12.76. The Superduper is the better alternative.

B. The Superduper generates an NPV of 12.57, whereas two Mediocre machines strung together to match the 6-year useful life of the alternative will generate an NPV of 12.76. The two-machine is the better alternative.

C. One cannot, in this case, evaluate these two investment alternatives because there is no method available to compare projects with different lives.

D. Both alternatives generate the same NPV, so neither alternative is better.

What is true about the relationship between the NPV and IRR methods?

A. They are basically the same method and use the same cash flows.

B. The two methods are quite different and will give you different answers to the question of whether an investment should be pursued.

C. The NPV is less reliable than the IRR.

D. The IRR is less reliable than the NPV.