Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. your company is considering investing in one of tw

Your company is considering investing in one of two mutually exclusive projects. The cost of capital...

Free

70.2K

Verified Solution

Question

Finance

Your company is considering investing in one of two mutuallyexclusive projects. The cost of capital is 11%. The first projectHas $25,000 annual cash inflows, a 10-year life, and will cost$120,000 at time zero. The second project has a 7-year life, Annualcash inflows of $20,000 per year, and a cost of $75,000 at timezero. Which project has the highest NPV. Assuming that theseprojects will most likely be repeated indefinitely into the future,which project would add the most value to the company? Justify youranswer using the EAA

Answer & Explanation Solved by verified expert
4.5 Ratings (671 Votes)

First Project
Annual Cash Flow 25000
Life 10 Years
Cost 120000
Amounts in $
SO Year Cash Flow PVF@ 11% Discounted Value
0       (120,000)                 1.00              (120,000)
1-10            25,000                 5.89                147,230
NPV                  27,230
Second Project
Annual Cash Flow 20000
Life 7 Years
Cost 75000
Amounts in $
SO Year Cash Flow PVF@ 11% Discounted Value
0          (75,000)                 1.00                (75,000)
1-10            20,000                 4.71                  94,244
NPV                  19,244
Project One will give has the Highest NPV
Project one will give most value to the company
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: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

How do parasympathetic neurons in the medulla respond to increased blood pressure? Which stimulus is detected by...

Medical Sciences
Q

Given the plot of normal distributions A and B below which of the following statements...

Statistics
Q

The Fara Littlebear Society is an NFPO funded by government grants and private...

Accounting
Q

Inspection costs at one of Ratulowski Corporation's factories are listed below: Units Inspection Produced...

Accounting
Q

Required information [The following information applies to the questions displayed below] On December 1, Jasmin...

Accounting
Q

7. If we assume a normal distribution in this study, if a man scored a...

Accounting
Q

Prepare the statement of stockholders' equity for the year ended December 31,2024 , note that...

Accounting
Q

I NEED HELP WITH THE PROBLEM UNDERNEATH. PLEASEE! A-Mobile Wireless needed...

Accounting
Q

Section C: Case Analysis Please answer the following questions, using the exhibit below and the...

Finance
Q

Only Requirement #4. third picture are the choices of accounts. All of other answers are...

Accounting
Q

1. Forest Components makes aircraft parts. The following transactions occurred in July: Purchased...

Accounting
Q

What are the long-term assets which do not have any physical existence? ...

Accounting