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Project A: The manager has requested to replace an old piece of machinery with a new and more efficient piece of equipment. The old machinery
Project A: The manager has requested to replace an old piece of machinery with a new and more efficient piece of equipment. The old machinery would be sold the following year after installation of the new equipment. The new equipment has an 15-year life. Purchase new equipment Sell old equipment in year 1 Reduction in annual maintenance costs Major maintenance overhaul in year 5 Increase in annual cash inflows due to increased production $400,000 50,000 5,000 50,000 75,000 Project B: Install solar panels on current facility to reduce electric costs. Panels have a 15-year life. Cost of solar system $200,000 Tax credits received in year 1 90,000 Annual reduction in electric bill 30,000 Annual maintenance costs 1,000 Required: 1. Calculate the net present value for each project. Show all computations by preparing a net present value schedule. 2. Which project(s) meet the screening requirements of the company? 3. Which project should the company accept based on net present value alone? 4. Calculate the profitability index for each project? Which project should the company accept based on the profitability index
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