Jestion

4

5 points

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a)Downling Sportswear is considering building a new factory to produce aluminium baseball bats This project would require an initial cash outlay of $5,000,000 and would generate annuak net cash inflows of $1,000,000 per year for

8 years Calculale the project's NPV using a discount rate of 9%

b)Barry Boswell is a financial analyst for Dossman Metal Works, Inc, and he is analyzing two alternative configurations for the fim's new plasma cutter shop. The two alternatives, denoted A and B below, will perform the same task

but alternalive A will cost $95,000 to purchase while alternative B will cost only $60,000 Moreover, the two altematives will have very different cash flows and useful lives. The after lax costs for the two projects are as lollows.

Year

Alternative A

O

S(95,000)

Alternative B

S(60,000)

$(21,000)

S(4,000)

2

$(21,000)

3

$(21,000)

$(4,000)

S(4.000)

5

$(21,000)

5(21,000)

6

7

S(21,000)

S(21,000)

)Calculate each project's EAC at a discount rate of 10%

W) Which of the alternatives do you think Barry should select?why?

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