NPV - Mutually exclusive projects - Hook Industries is considering the replacement of one of...
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NPV - Mutually exclusive projects - Hook Industries is considering the replacement of one of its old metal stamping machines. Three alternatives replacement machines are under consideration. The relevant cash flows associated with each are shown in the following table.
| Machine A | Machine B | Machine C | |
| Initial Investment(CF0) | $84,600 | $60,500 | $130,200 |
| Year (t) | Cash inflows (CFt) | ||
| 1 | $18,000 | $12,300 | $49,900 |
| 2 | $18,000 | $13,500 | $29,700 |
| 3 | $18,000 | $15,700 | $20,400 |
| 4 | $18,000 | $18,000 | $19,500 |
| 5 | $18,000 | $20,300 | $20,000 |
| 6 | $18,000 | $24,600 | $30,000 |
| 7 | $18,000 | - | $39,500 |
| 8 | $18,000 | - | $50,500 |
The firm's cost of capital is 8%.
a. calculate the net preset 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.
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