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Steve's Stoves Company, which desires a minimum rate of return on its investment projects of 15%, has two proposals under consideration. Their costs and expected
Steve's Stoves Company, which desires a minimum rate of return on its investment projects of 15%, has two proposals under consideration. Their costs and expected cash flows are: A B $132,000 $96,000 Initial investment Expected after-tax cash flows: Year 1 Year 2 Year 3 Year 4 $40,000 $32,000 $48,000 $24,000 $52,000 $56,000 $40,000 $32,000 In addition, proposal B has an expected cash salvage value at the end of four years of $8,000. The present value of $1 due in 1, 2, 3, and 4 years at 15% is .86957, .75614,.65752, and .57175, respectively. Using the profitability index method, determine which project, if either, should be accepted by the company
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