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Home Joy Produces various household goods. They want to produce one of two possible new products: either ceramic photo frames or ceramic water fountains. Each product would require a machinery investment of $320,000. Useful life for the frames machinery would be six years and the useful life for the fountains machinery would be four years. The expected annual net cash inflows are as follows:

Capital Investment Quiz Name ______________________________ Home Joy Produces various household goods. They want to produce one of two possible new products: either ceramic photo frames or ceramic water fountains. Each product would require a machinery investment of $320,000. Useful life for the frames machinery would be six years and the useful life for the fountains machinery would be four years. The expected annual net cash inflows are as follows: Useful Life Years 1 2 3 4 5 6 Frames Annual $ $ $ $ $ $ 60,000 60,000 60,000 60,000 60,000 60,000 Accumulated $ $ $ $ $ $ Useful Life Years 60,000 120,000 180,000 240,000 300,000 360,000 Requirements 1. Determine the payback period for each product. Frames 5.3333333333 Fountains 3.5555555556 2. Calculate the accounting rate of return. 1 2 3 4 Fountains Annual $ $ $ $ 90,000 90,000 90,000 90,000 Accumulated $ $ $ $ 90,000 180,000 270,000 360,000 3. Assuming that Home Joy requires a 12% return on each new product, what is the net present value of each product? Frames $ (73,315.40) Fountains $ (46,638.50) 4. Compute the internal rate of return for the project. Frames IRR is between 3% and 4% Fountains IRR is close to 5% 5. Would you invest in one of these projects? Why or why not? I would choose neither of the projects because both projects have a negative NPV.. If you had to select one of the two projects, which one would you chose? Why would you choose this one? If I had to choose I would choose the Fountain project because it has a higher IRR and a shorter payback period. yback period