Determine the net present value for both assets

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Evaluation of NPV for two assets and explain reasons

Your company plans to acquire one of two assets. Asset A costs $162,500, and has expected annual cash savings of $37,500. Asset B costs $225,000 and has expected annual cash savings of $77,500. You'll use straight-line depreciation for both assets over their estimated useful lives of 5 years, after which both will have a salvage value of zero. Your minimum desired rate of return is 14%, and the present value factor is 3.4331.

Ignoring income taxes, determinethe net present value for both assets. Which asset would you advise buying? Why?

Reference no: EM1310644

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