41. Evaluating Alternative Investments. Washington Brewery has two independent investment opportunities to purchase brewing equipment...
90.2K
Verified Solution
Link Copied!
Question
Accounting
41. Evaluating Alternative Investments. Washington Brewery has two independent investment opportunities to purchase brewing equipment so the company can meet growing customer demand. The first option (equipment A) requires an initial investment of $230,000 for equipment with an expected life of 5 years and a salvage value of $20,000. The second option (equipment B) requires an initial investment of $120,000 for equipment with an expected life of 4 years and a salvage value of $15,000. The companys required rate of return is 10 percent. Additional cash flow information for each investment is provided as follows.
a. Calculate the net present value for each investment using the format presented in . (Remember to include the initial investment cash outflow and salvage value in your calculation.) Round to the nearest dollar. b. Which, if any, investment is preferable? Explain.
Year Year 2 Year 3 Year 4 Year 5 Equipment A Utility savings S 12,000 S 14,000 15,000 16,000 S 17,000 Additional revenue45,000 48,00050,00055,00060,000 Maintenance costs(5,000)(8,000) (10,000) (13,000) 16,000) Equipment B Utility savings Additional revenue 35,00036,000 38,00042,000 Maintenance costs(6,000)(8,000)9,000) (11,000) S 8,0009,000 10,000 S 10,000
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
