Reference no: EM132527976

Brundage Laine Canine

                                                                                   Project A:                           Project B:

Cost of Project                                                                  1,800,000                   1,850,000

Additional Revenue per year                                                     800,000                   652,000

Additional Expenses per year

(these expenses do NOT include depreciation expense)                    350,000                   195,000

Estimated Life                                                                                 8                          7

Residual Value                                                                           12,000                   11,000

Cost of Capital                                                                            14%                       12%

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.

Report:

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.