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

11.6%

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	$64,000	$100,900
Year (t )	Cash inflows (CFt)
1	$11,800	$9,400	$30,900
2	11,800	19,600	30,900
3	11,800	31,000	30,900
4	11,800	39,300	30,900
5	11,800		30,900
6	11,800

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?