Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Use the NPV method to determine whether Root Products should invest in the following projects: . . Project A: Costs $270,000 and offers seven

image text in transcribedimage text in transcribed

Use the NPV method to determine whether Root Products should invest in the following projects: . . Project A: Costs $270,000 and offers seven annual net cash inflows of $54,000. Root Products requires an annual return of 16% on investments of this nature. Project B: Costs $380,000 and offers 10 annual net cash inflows of $76,000. Root Products demands an annual return of 14% on investments of this nature. (Click the icon to view Present Value of $1 table.) Read the requirements. (Click the icon to view Present Value of Ordinary Annuity of $1 table.) Requirement 1. What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places. (Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative net present value.) Caclulate the NPV (net present value) of each project. Begin by calculating the NPV of Project A. Project A: Years 1-7 Present value of annuity 0 Investment Net present value of Project A Calculate the NPV of Project B. Project B: Years 1-10 Present value of annuity 0 Investment Net Cash Inflow Annuity PV Factor (i=16%, n=7) Present Value Net Cash Inflow Annuity PV Factor (i=14%, n=10) Present Value Net present value of Project B Requirement 2. What is the maximum acceptable price to pay for each project? Project A Project B Maximum Acceptable Price Requirement 3. What is the profitability index of each project? (Round to two decimal places, X.XX.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting Tools for Business Decision Making

Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso

7th edition

978-1118344262, 111834426X, 1118162285, 978-1118562208, 1118562208, 978-1118162286

More Books

Students also viewed these Accounting questions

Question

WHAT IS A COMPUTER NETWORK?

Answered: 1 week ago

Question

HOW DOES THE INTERNET WORK?

Answered: 1 week ago