company has to choose between two different investments. Investment A: This investment requires an immediate outlay of $70,000 and another investment of $30,000 in year 3. The investment will return annual profits of $35,000 from year 2 to year 6. At the end of year 6, the investment has a residual value of $15,000. Investment B: This investment requires an immediate outlay of $40,000 and additional investments of $10,000 per year from year 1 to year 3. The investment will return annual profits of $29,000 from year 4 to year 6. At the end of year 6, the investment has a residual value of $25,000. The cost of capital is 9%. a. Calculate the NPV for investment A. b. Calculate the NPV for investment B.
company has to choose between two different investments. Investment A: This investment requires an immediate outlay of $70,000 and another investment of $30,000 in year 3. The investment will return annual profits of $35,000 from year 2 to year 6. At the end of year 6, the investment has a residual value of $15,000. Investment B: This investment requires an immediate outlay of $40,000 and additional investments of $10,000 per year from year 1 to year 3. The investment will return annual profits of $29,000 from year 4 to year 6. At the end of year 6, the investment has a residual value of $25,000. The cost of capital is 9%. a. Calculate the NPV for investment A. b. Calculate the NPV for investment B.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 13E: Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a...
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3.2 A company has to choose between two different investments.
Investment A: This investment requires an immediate outlay of $70,000 and another investment of $30,000 in year 3. The investment will return annual profits of $35,000 from year 2 to year 6. At the end of year 6, the investment has a residual value of $15,000.
Investment B: This investment requires an immediate outlay of $40,000 and additional investments of $10,000 per year from year 1 to year 3. The investment will return annual profits of $29,000 from year 4 to year 6. At the end of year 6, the investment has a residual value of $25,000.
The cost of capital is 9%.
a. Calculate the
b. Calculate the NPV for investment B.
c. Which investment should the company choose?
Investment A
Investment B
Niether
Kindly use all the decimals. DO NOT ROUND
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