Question
Airtite, Inc. is a maker of airtight containers for the food industry. Ivan Tout, president, has a decision to make regarding some plant improvements required
Airtite, Inc. is a maker of airtight containers for the food industry. Ivan Tout, president, has a decision to make regarding some plant improvements required by the EPA. Assume a 10% WACC. Here are the two proposals. Proposal A has an initial cost of $2,000,000. Cash flows are as follows: Year 1 ($500,000) Year 2 ($200,000) Year 3 ($200,000) Year 4 ($100,000) Year 5 ($100,000). Proposal B has an initial cost of $2,700,000. Cash flows are as follows: Year 1 ($100,000) Year 2 ($100,000) Year 3 ($100,000) Year 4 ($75,000) Year 5 ($25,000). Which proposal should you do? Show your work.
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