Generate annual sales of $195,000 and cash-costs of $117,500

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Question 1. Two mutually exclusive projects have 3-year lives and a required rate of return of 12.5 percent. Project A costs $65,000 and has cash flows of $18,500, $42,900, and $28,600 for Years 1 to 3, respectively. Project B costs $62,000 and has cash flows of $22,000, $38,000, and $26,500 for Years 1 to 3, respectively. Using the IRR, which project, or projects, if either, should be accepted? Please show your work.

Question 2. The Down Towner is considering a 4-year project that will require $164,800 for fixed assets and $42,400 for net working capital. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for $37,500 (after-tax) and the net working capital will return to its original level. The project is expected to generate annual sales of $195,000 and cash-costs of $117,500. The tax rate is 21 percent and the required rate of return is 15 percent. What is the project's net present value?

Reference no: EM133558156

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