Marvec Needs to Replace an Extruder and Two Replacements Look

question 3

Multiple Choice

Marvec needs to replace an extruder and two replacements look good. Extruder A costs $102,000 and has a 10-year life. Extruder B costs only $56,000, but its expected life is 6 years. Extruder A will generate net cash flows of $17,600 per year for 10 years and B will generate net cash flows of $13,800 per year for 6 years. If Marvec's cost of capital is 11%, which extruder should be chosen and what is its NPV? Use equivalent annual annuities.

• A) Extruder B, $564
• B) Extruder B, $2,388
• C) Extruder A, $1,646
• D) Extruder A, $280

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Definitions:

Bullwhip Effect

The phenomenon in supply chains where orders exhibit greater variance as one moves upstream in the chain, leading to inefficiency and excess inventory.

Supply Chain

A network of organizations, people, activities, information, and resources involved in moving a product or service from supplier to consumer.

Lack Of Coordination

The absence of harmonious operation or collaboration between groups or systems, often leading to inefficiency or disorder.

Hydrogen Ions

Positively charged ions (protons) of hydrogen that play a crucial role in chemical reactions and pH balance in biological systems.