Question
Need help asap homework due in an hour and I still don't understand! Marva Donuts is replacing an old equipment with a more efficient product.
Need help asap homework due in an hour and I still don't understand!
Marva Donuts is replacing an old equipment with a more efficient product. Two products are being considered. They have different costs and different cash flows, as shown below:
Year Project A Project B
0 -$150,000 -$250,000
1 50,000 60,000
2 50,000 60,000
3 50,000 120,000
4 50,000 120,000
The required return of Marva is 8%.
(a) What is the NPV of each project and which product should be chosen? (10 pts)
(b) Calculate the payback period for each product. If the payback cutoff is 4 years, which project should be chosen? (5 pts)
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