Rollerblade, a maker of skating gear, is evaluating two alternative presses. Press A costs $88,000, has a 4 year life, and is expected to generate annual cash inflows of $30,100 in each of the 4 years. Press B costs $122,000, has an 8 year life, and is expected to generate annual cash inflows of $24,600 in each of 8 years. The cost of replacement for A is $96,000 and the replacement press will generate cash inflows of $30,100 for another 4 years. Rollerblade uses a 12% cost of capital. Which press should be chosen?
A) A
B) B
C) Both A and B
D) neither A or B

Question

Quizplus · Accepted Answer

Solution:
NPVA= -$88,000 - $96,000(0.636) + $30,100(4.968) = $480.80
NPVB= -$122,000 + $24,600(4.968) = $212.80
Choose A

Rollerblade, a Maker of Skating Gear, Is Evaluating Two Alternative