Question
Question The second capital budgeting decision which Armstrong and you were asked to analyse involveschoosingbetween twomutuallyexclusiveprojects, SandL,whose cashflows areset forthbelow: ExpectedNetCashFlow Year ProjectS ProjectL 0
Question
The second capital budgeting decision which Armstrong and you were asked to analyse involveschoosingbetween twomutuallyexclusiveprojects, SandL,whose cashflows areset forthbelow:
ExpectedNetCashFlow | ||
Year | ProjectS | ProjectL |
0 | -$200,000 | -$200,000 |
1 | 120,000 | 67,000 |
2 | 120,000 | 67,000 |
3 | 67,000 | |
4 | 67,000 |
Both of these projects are in Archer's main line of business, premium table wine, and the investmentwhich is chosen is expected to be repeated indefinitely into the future. Also, each project is ofaveragerisk, and henceeach is assigned the10% required rate ofreturn.
What is each project's single cycle NPV? Can you make a decision on this information? Why orwhy not? If not, what should you do to be able to make a decision? Which project should bechosen? Why?
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Accounting Tools For Business Decision Making
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso
7th Edition
1-119-57105-6, 978-1119571056
