Question
A company has to choose between two different investments. Investment A : This investment requires an immediate outlay of $70,000 and another investment of $30,000
A company has to choose between two different investments. Investment A: This investment requires an immediate outlay of $70,000 and another investment of $30,000 in year 3. The investment will return annual profits of $40,000 from year 2 to year 7. At the end of year 7, the investment has a residual value of $10,000. Investment B: This investment requires an immediate outlay of $35,000 and additional investments of $15,000 per year from year 1 to year 3. The investment will return annual profits of $28,000 from year 4 to year 7. At the end of year 7, the investment has a residual value of $20,000. The cost of capital is 8%.
a. Calculate the NPV for investment A.
Round to the nearest cent
b. Calculate the NPV for investment B.
Round to the nearest cent
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