Question
1. project initial cost (incurred at beginning of year 1) Project life Salvage value Positive annual cash flow (received at the end of each year)
1.
project | initial cost (incurred at beginning of year 1) | Project life | Salvage value | Positive annual cash flow (received at the end of each year) |
A | $200000 | 16 years | $0 | $28000 |
B | $56000 | 14 years | $0 | $9783 |
B is higher than the Internal Rate of Return of project A.
Required:
A) Is the NPV for Project A higher than, equal to, or lower than, the NPV for Project
B, assuming a 10% discount rate?
B) Is the Payback Period for Project A better than, equal to, or worse than, the
Payback Period for Project B?
C) Is the Accounting Rate of Return for Project A higher than, equal to, or lower
than, the Accounting Rate of Return for Project B, assuming straight-line
depreciation?
D) If the discount rate is 11% instead of 10%, which project has the higher NPV?
E) If the discount rate is 10%, and both projects have a salvage value of $66,000
(i.e., the equipment for Project B actually appreciates), which project would have
the higher NPV?
2.: A merchandising company expects to sell 300 units in April, 400 units in May, and
500 units in June. The company plans to have 30% of each months sales, plus an
additional 50 units, on hand in inventory at the beginning of each month. How many
units should the company plan to purchase in May?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started