FIN 3004 Business Finance HomeworkBell Manufacturing Inc. is considering the replacement of one of its old drill presses. Three alternative replacement presses are under consideration. The relevant cash flows associated with each are shown in the following table. The firm’s cost of capital is 15%. Machine AMachine BMachine CInitial Investment 85,000 $60,000 $130,000 $YearCash Inflows118,000 $12,000 $50,000 $218,00014,00030,000318,00016,00020,000418,00018,00020,000518,00020,00020,000618,00025,00030,000718,000-----40,000818,000-----50,000 Calculate the net present value (NPV) of each press.Using NPV, evaluate the acceptability of each press.Rank the presses from best to worst using NPV.Calculate the profitability index (PI) for each press.Rank the presses from best to worst using PI.

Formula to calculate the NPV is: NPV = Cash flows/(1+i)^n - Initial investment Hi Student, Thanks…

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Business

Finance

NPV

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 16PROB

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	Machine A	Machine B	Machine C
Initial Investment	85,000 $	60,000 $	130,000 $
Year	Cash Inflows
1	18,000 $	12,000 $	50,000 $
2	18,000	14,000	30,000
3	18,000	16,000	20,000
4	18,000	18,000	20,000
5	18,000	20,000	20,000
6	18,000	25,000	30,000
7	18,000	-----	40,000
8	18,000	-----	50,000