JBL Co. has designed a new conveyor system. Management

 

must choose among three alternative courses of action: (1) The firm can sell

the design outright to another corporation with payment over 2 years; (2) it can license

the design to another manufacturer for a period of 5 years, its likely product

life; or (3) it can manufacture and market the system itself, an alternative that will

result in 6 years of cash inflows. The company has a cost of capital of 12%. Cash

flows associated with each alternative are as shown in the following table.

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a. Calculate the net present value of each alternative and rank the alternatives on

the basis of NPV.

b. Calculate the annualized net present value (ANPV) of each alternative, and rank

them accordingly.

c. Why is ANPV preferred over NPV when ranking projects with unequal lives?