Refer to McKnight Products in E12-46B. Compute the IRR of each project and use this information to identify the better investment.
Use the NPV method to determine whether McKnight Products should invest in the following projects:
• Project A costs $265,000 and offers seven annual net cash inflows of $65,000. McKnight Products requires an annual return of 16% on projects like A.
• Project B costs $385,000 and offers nine annual net cash inflows of $72,000. McKnight Products demands an annual return of 12% on investments of this nature.
Requirement
What is the NPV of each project? What is the maximum acceptable price to pay for each project?