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Atlantic Control Company (ACC) is evaluating two expansion projects. Construction costs of Project A is 3000005 and Project B is 4000005 . Currently, unit sales
Atlantic Control Company (ACC) is evaluating two expansion projects. Construction costs of Project A is 3000005 and Project B is 4000005 . Currently, unit sales price of goods manufactured by Project A is 125 and Project B is 15S. And the sales price of each product is estimated to grow at 5% annually. Also, unit production cost of goods manufactured by Project A is 4S and Project B is 55 and these costs are expected to grow at 4% annually. Additionally, company has to pay 20000 S as fixed expenses for Project A and 250005 for project B annually. Projects will be depreciated on a straight line basis towards 0 salvage value for 5 years. Annual sales, production data and required working capital needs are given below. Company expects to sell both projects for 15000 S after 5 years. Assuming marginal tax rate is 25% and required rate of return is 14% and two projects are mutually exclusive, which project would you choose? (Hint: All cash flows occur at the end of each year. Also use only two digits after
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