Rollerblade, a Maker of Skating Gear, Is Evaluating Two Alternative

question 5

Multiple Choice

Rollerblade, a maker of skating gear, is evaluating two alternative presses. Press A costs $88,000, has a 4-year life, and is expected to generate annual cash inflows of $30,100 in each of the 4 years. Press B costs $122,000, has an 8-year life, and is expected to generate annual cash inflows of $24,600 in each of 8 years. The cost of replacement for A is $96,000, and the replacement press will generate cash inflows of $30,100 for another 4 years. Rollerblade uses a 12% cost of capital. Which press should be chosen?

• A) Press A
• B) Press B
• C) Both Presses A and B
• D) Neither Press A nor B

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Definitions:

Negative

In mathematics and statistics, it refers to a value less than zero.

Strong

Having high physical power, durability, or intensity; often used to describe materials or individuals.

Tired

The state of feeling a need for rest or sleep due to exhaustion.

Linear Association

A relationship between two variables that can be represented by a straight line when plotted on a graph.