Kaneb Is Evaluating Two Alternative Pipeline Welders

Multiple Choice

Kaneb is evaluating two alternative pipeline welders. Welder A costs $310,000, has a 7-year life, and is expected to generate net cash inflows of $78,000 in each of the 7 years. Welder B costs $320,000, has a 5-year life, and is expected to generate annual net cash inflows of $68,900 in each of the 5 years. Kaneb's cost of capital is 16%. Using the equivalent annual annuity method, which alternative should be chosen and what is its NPV?

A) Welder B, $4,920
B) Welder A, $7,111
C) Welder B, $10,650
D) Welder A, $7,800