A company is considering the purchase and installation of a pump which will deliver oil at a faster rate than the pump already in use. The purchase and installation of the larger pump will require an immediate layout of $1600, but it will recover all the cost by the end of one year. The relevant cash flows have been established as follows:
Explain the values given for the discounted-cash-flow rate of return and net present worth. If the company requires a minimum rate of return of 10 percent, which alternative should be chosen?