Hook industries is considering the replacement of one of its old drill presses. Three alternative replacement...
Hook industries is considering the replacement of one of its old drill presses. Three alternative replacement presses are under consideration. The relevant cash flow assiciated with each are shown in the following table. The firms cost of captital is 15%.
| Press A | Press B | Press C | |
|---|---|---|---|
| Initial Investment | $85000 | $60000 | $130000 |
| Year | Cash inflows | ||
| 1 | $18000 | $12000 | $50000 |
| 2 | $18000 | $14000 | $30000 |
| 3 | $18000 | $16000 | $20000 |
| 4 | $18000 | $18000 | $20000 |
| 5 | $18000 | $20000 | $20000 |
| 6 | $18000 | $25000 | $30000 |
| 7 | $18000 | --- | $40000 |
| 8 | $18000 | --- | $50000 |
a) Calculate the 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 profitbility index for each press.
e) Rank the presses from best to worst using PI.
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