Question
0 Project A Interest rate Year 0 Year 1 Year 2 Year 3 Year 5 Year 6 Total Required 15% Outflow ($700,000) ($700,000) Inflow $225,000
| 0 | ||||||||
| Project A | Interest rate | Year 0 | Year 1 | Year 2 | Year 3 | Year 5 | Year 6 | Total |
| Required | 15% | |||||||
| Outflow | ($700,000) | ($700,000) | ||||||
| Inflow | $225,000 | $225,000 | $225,000 | $225,000 | $225,000 | 1,125,000.00 | ||
| Net Inflow | $225,000 | $225,000 | $225,000 | $225,000 | $225,000 | $425,000 | ||
| NPV | $54,234.90 | |||||||
| Project B | ||||||||
| Required | 15% | |||||||
| Outflow | ($400,000) | ($400,000) | ||||||
| Inflow | $110,000 | $110,000 | $110,000 | $110,000 | $110,000 | $550,000 | ||
| Net Inflow | $110,000 | $110,000 | $110,000 | $110,000 | $110,000 | $150,000 | ||
| NPV | ($31,262.94) |
Based on the information above, identify which project (Project A or B) should be accepted? Explain why. By changing the figures in the excel template (above), assume the interest rate for Project A fell to 13%, and Cash outflow (The initial investment) was $950,000, Cash Inflows was $350,000 per annum for the 6 years, and Net inflows was also $250,000. For Project B, assume interest rate also fell to 13% but Cash outflow, Inflow and Net Inflows remain the same. What is the new NPV for each of the project? Would you receommend that any of these project be accepted by the investor? Why/Why not?
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Horngrens Financial And Managerial Accounting The Managerial Chapters
Authors: Tracie Miller Nobles, Brenda Mattison, Ella Mae Matsumura
6th Edition
0134486854, 978-0134486857
