2- Bell 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 A Machine B Machine C Initial Investment 85,000 $ 60,000 $ 130,000 $ Year Cash Inflows 12,000 $ 14,000 1 18,000 $ 50,000 $ 2 18,000 30,000 3 18,000 16,000 20,000 4 18,000 18,000 20,000 5 18,000 20,000 20,000 18,000 18,000 18,000 25,000 30,000 40,000 50,000 --- -- 67 8.
2- Bell 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 A Machine B Machine C Initial Investment 85,000 $ 60,000 $ 130,000 $ Year Cash Inflows 12,000 $ 14,000 1 18,000 $ 50,000 $ 2 18,000 30,000 3 18,000 16,000 20,000 4 18,000 18,000 20,000 5 18,000 20,000 20,000 18,000 18,000 18,000 25,000 30,000 40,000 50,000 --- -- 67 8.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
The question is ''Calculate the profitability index (PI) for each press''.
Transcribed Image Text:2- Bell 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 A
Machine B
Machine C
Initial Investment
85,000 $
60,000 $
130,000 $
Year
Cash Inflows
12,000 $
50,000 $
30,000
20,000
20,000
20,000
30,000
40,000
1
18,000 $
2
18,000
14,000
16,000
18,000
3
18,000
18,000
18,000
18,000
18,000
4
5
20,000
6.
25,000
7
--- --
8
18,000
50,000
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