Question
Contact Manufacturing, Inc. is considering two alternative investment proposals. The first proposal calls for a major renovation of the company's manufacturing facility. The second involves
Contact Manufacturing, Inc. is considering two alternative investment proposals. The first proposal calls for a major renovation of the company's manufacturing facility. The second involves replacing the facility and equipment. The company will choose one project or the other this year, but it will not do both. The cash flows associated with each project appear below and the firm discounts project cash flows at 15 percent
| Year | Renovate | Replace |
| 0 | $ (3,000,000) | $ (6,000,000) |
| 1 | $ 1,000,000 | $ 3,000,000 |
| 2 | $ 1,000,000 | $ 2,000,000 |
| 3 | $ 1,000,000 | $ 2,000,000 |
| 4 | $ 1,000,000 | $ 1,000,000 |
| 5 | $ 1,000,000 | $ 1,000,000 |
What is Renovate's Pay Back Period to the nearest Half Year?
| A. | 2.5 | |
| B. | 3.0 | |
| C. | 3.5 | |
| D. | 4.0 |
4 points
What is Pay Back Period to the nearest Half Year for the REPLACE option?
| A. | 2.5 | |
| B. | 3.0 | |
| C. | 3.5 | |
| D. | 4.0 |
What is the IRR for Renovate?
| A. | 19.0% | |
| B. | 19.4% | |
| C. | 19.9% | |
| D. | 20.1% |
What is the IRR for Replace?
What is the NPV of Renovate?
| A. | $352,155 | |
| B. | $504,945 | |
| C. | $675,321 | |
| D. | -$142,601 |
4 points
What is the NPV of Replace?
| A. | $352,155 | |
| B. | $504,945 | |
| C. | -142,321 | |
| D. | $504,601 |
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Personal Finance
Authors: Jack R. Kapoor, Les R. Dlabay, Robert J. Hughes, Melissa Hart
12th edition
1259720683, 978-1259720680
