Calculate the net present value for investments d and e

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Reference no: EM13928226

Turbomachinery Parts, Inc., is considering two mutually exclusive equipment invest- ments that would increase its production capacity. The firm uses a 14 percent required rate of return to evaluate capital expenditure projects. The two investments have the following costs and expected cash flow streams:

Year	Investment D	Investment E	Year	Investment D Investment E
0	-$50,000	-$50,000	4	- $15,000
1	24,000	15,000	5	- 15,000
2	24,000	15,000	6	- 15,000
3	24,000	15,000

a. Calculate the net present value for Investments D and E.

b. Create a replacement chain for Investment D. Assume that the cost of replacing D remains at $50,000 and that the replacement project will generate cash inflows of $24,000 for years 4 through 6. Using these figures, recompute the net present value for Investment D.

c. Which of the two investments should be chosen, D or E? Why?

d. Use the equivalent annual annuity method to solve this problem. How does your answer compare with the one obtained in part b?

Reference no: EM13928226

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