Question: Raycom, Inc. needs a new overhead crane and two alternatives are available. Crane T costs $1.35 million and will produce cost savings of $765,000 in each of the next three years. Crane R will cost $1.675 million and will yield annual cost savings of $815,000 for the next three years. The required rate of return is 15 percent.
Calculate the NPV of Crane T?
Calculate the NPV of Crane R?
Which of the two cranes should Raycom choose based on NPV criteria?