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Maxima Construction is considering 2 long-term capital investment projects. Each investment has a useful life of 8 years. Relevant data for each project follows: Capital
Maxima Construction is considering 2 long-term capital investment projects. Each investment has a useful life of 8 years. Relevant data for each project follows: Capital Investment Annual Profit Project A $ 100,000 $ 10,000 Project B $ 80,000 $ 15,000 Additional Information: Depreciation is calculated by the straight-line method with no residual (salvage) value. The company's cost of capital rate is 6%. Refer to the excerpts of the Present Value Tables provided below. Required: 1. Compute the net present value for each project. (Round to nearest dollar) (2 marks per project, 4 marks total) 2. Which Project would you recommend and why? (2 marks) 2. Which Project would you recommend and why? (2 marks) All of your work must be clearly labelled and laid out so that the marker can follow and grade it. All calculations must be shown using the following symbols: add (+), subtract (-), multiply (x) divide (/) Present Value (PV) of $1 2% 4% 6% 8% 10% 1 0.98039 0.96154 0.94340 0.92593 0.90909 2 0.96117 0.92456 0.89000 0.85734 0.82645 3 0.94232 0.88900 0.83962 0.79383 0.75131 4 0.92385 0.85480 0.79209 0.73503 0.68301 5 0.90573 0.82193 0.74726 0.68058 0.62092 6 0.88797 0.79031 0.70496 0.63017 0.56447 7 0.87056 0.75992 0.66506 0.58349 0.51316 8 0.85349 0.73069 0.62741 0.54027 0.46651 9 0.83676 0.70259 0.59190 0.50025 0.42410 10 0.82035 0.67556 0.55839 0.46319 0.38554 Present Value (PV) of an Annuity of $1 2% 4% 6% 8% 10% 1 0.98039 0.96154 0.94340 0.9293 0.90909 2 1.94156 1.88609 1.83339 1.78326 1.73554 3 2.88388 2.77509 2.67301 2.57710 2.48685 4 3.80773 3.62990 3.46511 3.31213 3.16987 5 4.71346 4.45182 4.21236 3.99271 3.79079 6 5.60143 5.24214 4.91732 4.62288 4.35526 7 6.47199 6.00205 5.58238 5.20637 4.86842 8 7.32548 6.73274 6.20979 5.74664 5.33493 9 8.16224 7.43533 6.80169 6.24689 5.75902 10 8.98259 8.11090 7.36009 6.71008 6.14457
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