Question
Gunnell Incorporated is considering two mutually exclusive 10-year investments. The initial cash outlays and expected net after-tax cash flows are shown below. Project 1 Project
Gunnell Incorporated is considering two mutually exclusive 10-year investments. The initial cash outlays and expected net after-tax cash flows are shown below.
| Project 1 | Project 2 | |
|---|---|---|
| Initial | $(2,720,000) | $(1,960,000) |
| Year 1 | 218,000 | 432,000 |
| Year 2 | 218,000 | 407,000 |
| Year 3 | 256,000 | 390,000 |
| Year 4 | 305,000 | 390,000 |
| Year 5 | 354,000 | 341,000 |
| Year 6 | 491,000 | 219,000 |
| Year 7 | 545,000 | 202,000 |
| Year 8 | 654,000 | 186,000 |
| Year 9 | 763,000 | 175,000 |
| Year 10 | 982,000 | 142,000 |
Part 2 (Algo)
2. Which project would you recommend to Gunnell management? Are there strategic or risk factors that might lead you to recommend the project with the lower NPV? Explain with specific evidence.
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Financial Accounting
Authors: Walter Harrison, Wendy Tietz, C. Thomas, Greg Berberich, Catherine Seguin
7th Canadian Edition
0135433061, 9780135433065
