Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Unequal livesANPV approach JBL Co. has designed a new conveyor system. Management must choose among three alternative courses of action: (1) The firm can sell

image text in transcribed

Unequal livesANPV approach JBL Co. has designed a new conveyor system. Management must choose among three alternative courses of action: (1) The firm can sell the design outright to another corporation with payment over 2 years. (2) It can license the design to another manufacturer for a period of 5 years, its likely product life. (3) It can manufacture and market the system itself; this alternative will result in 6 years of cash inflows. The company has a cost of capital of 11.7%. Cash flows associated with each alternative are as shown in the following table. (Click on the icon here e in order to copy the contents of the data table below into a spreadsheet.) Alternative Sell License Manufacture Initial investment (CF) $199.600 $199,500 $449,400 Year (t) Cash inflows (CF) 1 $200,000 $249,300 $200.600 2 250,000 100.700 245,000 3 79,600 200,600 4 59,300 200,600 5 39,400 200,600 6 200,600 a. Calculate the net present value of each alternative and rank the alternatives on the basis of NPV. b. Calculate the annualized net present value (ANPV) of each alternative and rank them accordingly. c. Why is ANPV preferred over NPV when ranking projects with unequal lives

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Investments

Authors: Zvi Bodie, Alan J. Marcus, Alex Kane

6th Edition

0072861789, 9780072861785

More Books

Students also viewed these Finance questions