E26-24 Using NPV and profitability index to make capital investment decision: . 1.) Project B $500 NPV

Use the NPV method to determine whether Juda Products should invest in the following projects:

Project A: Costs $290,000 and offers seven annual net cash inflows of $57,000. Juda Products requires an annual return of 14% on investments of this nature.

Project B: Costs $395,000 and offers 10 annual net cash inflows of $70,000. Juda Products demands an annual return of 12% on investments of this nature.

Requirements

1. What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places.

2. What is the maximum acceptable price to pay for each project?

3. What is the profitability index of each project? Round to two decimal places.

E26-25 Using IRR to make capital investment decisions Project A: 8%-9% IRR

Refer to the data regarding Juda Products in Exercise E26-24. Compute the IRR of each project, and use this information to identify the better investment.