Unequal liveslong ANPV 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 2years. (2) It can license the design to another manufacturer for a period of 5years, its likely product life. (3) It can manufacture and market the system itself; this alternative will result in 6years of cash inflows. The company has a cost of capital of 11.8% Cash flows associated with each alternative are as shown in the following table.

Alternative	Sell	License	Manufacture
Initial investment CF0)	$199,200	$200,200	$450,200
Year (t)	Cash inflows(CFt)
1	$199,300	$251,000	$199,600
2	249,500	101,000	260,000
3		80,100	199,600
4		60,300	199,600
5		40,300	199,600
6			199,600

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?