Compute the net present value of the two projects

Reference no: EM13271191

Leung Corporation is considering investing in two different projects. It could invest in both, neither, or just one of the projects. The forecasts for the projects are as follows:
Project A:
Capital investment $200,000
Net annual cash flows $50,000
Length of project 5 years
Project B:
Capital investment $300,000
Net annual cash flows $65,000
Length of project 7 years

The required rate of return acceptable to Leung is 9%.

Instructions

(a) Compute the net present value of the two projects.
(b) What capital budgeting decision should Leung make?
(c) Project A could be modified. By spending $25,000 more initially, the net annual cash flows could be increased by $10,000 per year. Would this change Leung'sdecision?

Reference no: EM13271191

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