Sancheti company, a maker of skating gear, is evaluating two alternative presses. Press A costs $85,000, has a 4-year life, and is expected to generate annual cash inflows of $30,500 in each of the 4 years. Press B costs $123,500, has an 8-year life, and is expected to generate annual cash inflows of $25,300 in each of 8 years. The cost of replacement for Press A is $86,000, and the replacement press will generate cash inflows of $32,200 for another 4 years. Sancheti company uses a 13% cost of capital. Which press should be chosen and why?

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
icon
Related questions
icon
Concept explainers
Topic Video
Question

Sancheti company, a maker of skating gear, is evaluating two alternative presses. Press A costs $85,000, has a 4-year life, and is expected to generate annual cash inflows of $30,500 in each of the 4 years. Press B costs $123,500, has an 8-year life, and is expected to generate annual cash inflows of $25,300 in each of 8 years. The cost of replacement for Press A is $86,000, and the replacement press will generate cash inflows of $32,200 for another 4 years. Sancheti company uses a 13% cost of capital. Which press should be chosen and why? 

Expert Solution
Step 1: Given Information:

Here,

Finance homework question answer, step 1, image 1

Cost of capital = 13%

To Find:

Net present value and the decision to choose =?

steps

Step by step

Solved in 3 steps with 3 images

Blurred answer
Knowledge Booster
Capital Budgeting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education