Net present value: Cranjet Industries is expanding its product line and its production capacity. The costs and expected cash flows of the two independent projects are given in the following table. The firm uses a discount rate of 16.4 percent for such projects.

a. What are the NPVs of the two projects?

b. Should both projects be accepted? or either? or neither? Explain your reasoning.

Transcribed Image Text:

Year Product Line Expansion Production Capacity 0 1 -$2,575,000 Expansion -$8,137,250 600,000 2,500,000 2345 875,000 2,500,000 875,000 2,500,000 875,000 3,250,000 875,000 3,250,000