Question

Unequal lives—ANPV approach Evans 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 machines A, B, and C-are equally risky. The firm plans to use a cost of capital of 11.2% 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.) O Machine A $92,500 Machine B $65,000 Machine C $101,300 Initial investment (CF)

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins Formulas - 2x 11 pt General AA = = = A E Wrap Text Merge & Center Σ AutoSum : A Fill 2 Sort & m Find & 8. Insert Delete Format File Home Insert Page Layout % Cut Calibri Ea Copy Paste Format Painter B I U D Clipboard Font DQ2 fix DH DI DJ $ - % Number Conditional Format Formatting as Table Styles Cell Styles 2 Clear Filter Editing Select Alignment Cells DK DL DM DN D O DP DQ DR DS DI DU FORMULA = 1/(1+r)^n = 1/(1+0.112)^n A B C Nm + na PROJECT year PV FACTOR AT 11.20% Ε 0 1 2 A -92500 12600 12600 12600 12600 12600 12600 B C -65000 -101300 9000 31000 20200 31000 30500 31000 40200 31000 31000 11 А в с PV OF CFAT PV OF CFAT PV OF CFAT E A* B *E C*E -92500.00 -65000.00 -101300.00 11330.94 8093.53 27877.70 10189.69 16335.85 25069.87 9163.39 22181.22 22544.85 8240.46 26290.99 20274.14 7410.48 18232.14 0.899281 0.808706 0.727253 0.654005 0.588134 12 13 14 4 5 6 0.528897 6664.10 15 16 NPV ---> ANPV ---> -39500.94 -9390.95 7901.59 2557.77 12698.71 3453.20 17 18 [NPV/[email protected]%, 6 YEARS] (-39500.94/4.206275] 19 20 RATION PBP ARR invest, EAA MI-np-ir_ REPLACEMENT S HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED I RRnpvbeta ferences Rea REPLACEMENT BOND OPTION TO WAITSTEIN BOU 130% 2. B 9 * * O ENG 0 24-11-2019

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins File Home Insert Page Layout Formulas - 2x % Cut Σ AutoSum : A Calibri 11 A = = = V A A B I U - D SF Wrap Text General Merge Merge & Center Center $ - % % CD Number 4:0 .00 8.9 Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Fill 2 Clear Sort & Filter Editing Find & Select Font Alignment Cells E Copy Paste Format Painter Clipboard DO28 DH 20 21 DI DJ DK DL DM DN D O DP DQ DR DS DE DU PROJECT RANK 22 NPV 12698.71 7901.59 -39500.94 23 w NP 24 PROJECT RANK ANPV 3453.20 2557.77 -9390.95 ACCORDING TO NPV, PROJECT C IS BETTER ACCORDING TO ANPV, SAME PROJECT C IS BETTER 25 26 27 28 29 30 31 32 33 34 35 36 37 38 NON Rea WHEN THE LIVES ARE UNEQUAL, WE SHOULD USE ANPV AS IT GIVES NET VALUE ADDED PER YEAR RATION PBP ARR invest, EAA MI-np-ir_ REPLACEMENT S HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED IRRnpvbeta ferences REPLACEMENT BOND OPTION TO WAITSTEIN III BOI 130% 0 # 2. B 19 * 40 ENG 24-11-2019