Kaneb is evaluating two alternative pipeline welders. Welder A costs $310,000, has a 1-year life, and is expected to generate net cash inflows of $78,000 in each of the 7 years. Welder B costs $320,000, has a 5-year life, and is expected to generate annual net cash inflows of $68,900 in each of the 5 years. Kaneb's cost of capital is 16%. Using the equivalent annual annuity method, which alternative should be chosen and what is its NPV?

Kaneb is evaluating two alternative pipeline welders. Welder A costs $310,000, has a 1-year life, and is expected to generate net cash inflows of $78,000 in each of the 7 years. Welder B costs $320,000, has a 5-year life, and is expected to generate annual net cash inflows of $68,900 in each of the 5 years. Kaneb's cost of capital is 16%. Using the equivalent annual annuity method, which alternative should be chosen and what is its NPV?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Kaneb is evaluating two alternative pipeline welders. Welder A costs $310,000, has a /-year life, and is expected to
generate net cash inflows of $78,000 in each of the 7 years. Welder B costs $320,000, has a 5-year life, and is
expected to generate annual net cash inflows of $68,900 in each of the 5 years. Kaneb's cost of capital is 16%. Using the
equivalent annual annuity method, which alternative should be chosen and what is its NPV?

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