Unformatted text preview: find and depict on a time line the relevant cash flow stream associated with each of the two proposed replacement
presses, assuming that each is terminated at the end of 5 years.
c. Using the data developed in part b, apply each of the following decision techniques:
(1) Payback period. (Note: For year 5, use only the operating cash inflows—
that is, exclude terminal cash flow—when making this calculation.)
(2) Net present value (NPV).
(3) Internal rate of return (IRR).
d. Draw net present value profiles for the two replacement presses on the same
set of axes, and discuss conflicting rankings of the two presses, if any, resulting from use of NPV and IRR decision techniques.
e. Recommend which, if either, of the presses the firm should acquire if the
firm has (1) unlimited funds or (2) capital rationing.
f. What is the impact on your recommendation of the fact that the operating
cash inflows associated with press A are characterized as very risky in contrast to the low-risk operating cash inflows of press B? 465...
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