Reference no: EM132528559

Brundage Laine Canine

                                                                                             Project A:                                    Project B:

Cost of Project                                                          503,924                                 1,899,113

Additional Revenue per year                                          977,080                                1,651,623

Additional Expenses per year

(these expenses do NOT include depreciation expense)            870,310                        1,085,000

Estimated Life                                                                       8                                   6

Residual Value                                                                   14,720                            15,391

Cost of Capital                                                                   12%                                  18%

Additional information: All of the revenue will be received and all of the expenses will be paid by year-end The straight line depreciation method is used.

Question 1: Compute the cash payback period, the ARR, and the NPV of each project.

Question 2: Compute the excess present value index for each project.

Question 3: Disregarding residual value, what is the approximate IRR for each project?

Question 4: Describe the advantages and limitations of evaluating projects using these three methods of capital budgeting: cash payback analysis, ARR, and NPV.

Question 5: Which is the better project for your company? Describe your reasons for selecting this project.