Marvec Needs to Replace an Extruder and Two Replacements Look

question 10

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

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