The Acme Widget Company is considering two mutually exclusive projects with the following after-tax net cash flows: Project A Project B Initial Outlay -$50,000 -$50,000 Inflow year 1 32,000 14,000 Inflow year 2 32,000 14,000 Inflow year 3 14,000 Inflow year 4 14,000 Inflow year 5 14,000 Inflow year 6 14,000 Project A has an expected life of two years and Project B has an expected life of six years. Assume a required rate of return of 10 percent. Calculate each project’s net present value. Are these projects comparable? Why or why not? Compare these projects using the replacement chain and equivalent annual annuity techniques. Which project should be selected? Support your recommendation

The Acme Widget Company is considering two mutually exclusive projects with the following after-tax net cash flows: Project A Project B Initial Outlay -$50,000 -$50,000 Inflow year 1 32,000 14,000 Inflow year 2 32,000 14,000 Inflow year 3 14,000 Inflow year 4 14,000 Inflow year 5 14,000 Inflow year 6 14,000 Project A has an expected life of two years and Project B has an expected life of six years. Assume a required rate of return of 10 percent. Calculate each project’s net present value. Are these projects comparable? Why or why not? Compare these projects using the replacement chain and equivalent annual annuity techniques. Which project should be selected? Support your recommendation

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 10P: Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year...

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The Acme Widget Company is considering two mutually exclusive projects with the following after-tax net cash flows:

Project A Project B

Initial Outlay -$50,000 -$50,000

Inflow year 1 32,000 14,000

Inflow year 2 32,000 14,000

Inflow year 3 14,000

Inflow year 4 14,000

Inflow year 5 14,000

Inflow year 6 14,000

Project A has an expected life of two years and Project B has an expected life of six years. Assume a required rate of return of 10 percent.

Calculate each project’s net present value.
Are these projects comparable? Why or why not?
Compare these projects using the replacement chain and equivalent annual annuity techniques. Which project should be selected? Support your recommendation.

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