Net present value of two capital projects Blossen Company produces molded plastic ap- pliance housings. Its molds are wearing out and need replacing. The company is evaluating two suppliers' proposals for replacement molds. Supplier A is offering to replace the company's molds with new molds costing $305,000. The supplier will allow $15,000 on the company's old molds as a trade-in. The new molds have a useful life of 5 years and a salvage value of $10,000. Using the new molds, the company estimates net cash inflows of $95,000 per year.

Supplier B is offering replacement molds costing $330,000 and is willing to allow $10,000 as a trade-in on the old molds. The new molds have a useful life of 7 years and a salvage value of $10,000. Since these molds require more maintenance than those of supplier A, the company estimates that its net cash inflows from using the molds would be only $90,000 per year. The company evaluates its capital projects using the net present value method with an estimated cost of capital of 20 percent.

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REQUIRED a. Compute the net present value of each project. b. Compute the profitability index for each. c. Decide which supplier's molds should be acquired. Computer requirement There is considerable question about the correct discount rate to be used in the analysis. Repeat requirement a and b again using as the cost of capital: d. 15 percent. e. 18 percent. f. 21 percent. g. 24 percent.