Question

NPV Mutually exclusive projects Hook Industries is considering the replacement of one of its old metal stamping machines. Three alternative replacement machines are under consideration. The relevant cash flows associated with each are shown in the following table: The firm's cost of capital is 8% X Data Table a. Calculate the net present value (NPV) of each press. b. Using NPV, evaluate the acceptability of each press. c. Rank the presses from best to worst using NPV d. Calculate the profitability index (PI) for each press e. Rank the presses from best to worst using PI. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) a. The NPV of press A is $(Round to the nearest cent.) Machine A Machine C Machine B Initial investment (CFo) $85,200 $60,200 $130,400 Cash inflows (CF) Year (t) $12,400 $13,800 $18,200 $50,400 $29,800 2 $18,200 $19,600 $20,000 $18,200 $16,400 4 $18,200 $18,400 5 $18,200 $19,600 $24,500 $20,500 $18,200 $29,900 $39,800 $50 500 $18,200 8 $18.200

Answer 1

NPV = PV of Cash Inflows - PV of Cash Outflows

PI = PV of Cash Inflows / PV of Cash Outflows

		Machine A		Machine B		Machine C
Year	PVF @8%	CF	Disc CF	CF	Disc CF	CF	Disc CF
1	0.9259	$ 18,200.00	$    16,851.85	$ 12,400.00	$    11,481.48	$ 50,400.00	$    46,666.67
2	0.8573	$ 18,200.00	$    15,603.57	$ 13,800.00	$    11,831.28	$ 29,800.00	$    25,548.70
3	0.7938	$ 18,200.00	$    14,447.75	$ 16,400.00	$    13,018.85	$ 19,600.00	$    15,559.11
4	0.7350	$ 18,200.00	$    13,377.54	$ 18,400.00	$    13,524.55	$ 20,000.00	$    14,700.60
5	0.6806	$ 18,200.00	$    12,386.61	$ 19,600.00	$    13,339.43	$ 20,500.00	$    13,951.96
6	0.6302	$ 18,200.00	$    11,469.09	$ 24,500.00	$    15,439.16	$ 29,900.00	$    18,842.07
7	0.5835	$ 18,200.00	$    10,619.53			$ 39,800.00	$    23,222.92
8	0.5403	$ 18,200.00	$      9,832.89			$ 50,500.00	$    27,283.58
PV of Cash Inflows			$ 1,04,588.83		$ 1,05,100.00		$ 2,60,500.00
PV of Cash Outflow			$    85,200.00		$    60,200.00		$ 1,30,400.00
NPV			$    19,388.83		$    44,900.00		$ 1,30,100.00
Project Acceptance based on NPV			Accepted		Accepted		Accepted
Ranking based on NPV			3		2		1
PI (PV of CI / PV of CO)			1.23		1.75		2.00
Ranking based on PI			3		2		1