Question
1. Use the NPV method to determine whether CM Products should invest in the following projects: Project A: Costs $260,000 and offers seven annual net
1. Use the NPV method to determine whether CM Products should invest in the following projects:
Project A: Costs $260,000 and offers seven annual net cash flows of $57,000. CM Products requires an annual return of 16%on investments of this nature.
Project B: Costs $375,0000 and offers ten annual net cash flows of $75,000. CM Products demands an annual return of 14% on investments of this nature.
Q: What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places.
Q1: What is the maximum acceptable price to pay for each project?
Q2: What is the profitability of each project? Round to two decimal places.
2. Using the data in #1, compute the IRR of each project and use this information to identify the better investment. (Project A 12%-14% IRR)
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