Question

Axis Corp. is considering an investment in the best of two mutually exclusive projects. Project Kelvin...

Axis Corp. is considering an investment in the best of two mutually exclusive projects. Project Kelvin involves an overhaul of the existing​ system; it will cost ​$70,000 and generate cash inflows of ​$30,000 per year for the next 3 years. Project Thompson involves the replacement of the existing​ system; it will cost ​$275, 000 and generate cash inflows of ​$61 comma 000 per year for 6 years. Using​ a(n) 11.14​% cost of​ capital, calculate each​ project's NPV, and make a recommendation based on your findings.

Homework Answers

Answer #1

NPV = PV of Cash Inflows - PV of Cash Outflows

Project Kelvin:

Year CF PVF @11.14% Disc CF
0 $ -70,000.00             1.0000 $ -70,000.00
1 $ 30,000.00             0.8998 $ 26,992.98
2 $ 30,000.00             0.8096 $ 24,287.37
3 $ 30,000.00             0.7284 $ 21,852.95
NPV $    3,133.30

Project Thompson:

Year CF PVF @11.14% Disc CF
0 $ -2,75,000.00     1.0000 $ -2,75,000.00
1 $      61,000.00     0.8998 $      54,885.73
2 $      61,000.00     0.8096 $      49,384.32
3 $      61,000.00     0.7284 $      44,434.33
4 $      61,000.00     0.6554 $      39,980.50
5 $      61,000.00     0.5897 $      35,973.10
6 $      61,000.00     0.5306 $      32,367.38
NPV $    -17,974.64

Project Kelvin is suggested as it has +ve NPV.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Axis Corp. is considering an investment in the best of two mutually exclusive projects. Project Kelvin...
Axis Corp. is considering an investment in the best of two mutually exclusive projects. Project Kelvin involves an overhaul of the existing​ system; it will cost ​$20,000 and generate cash inflows of ​$15,000 per year for the next 3 years. Project Thompson involves replacement of the existing​ system; it will cost ​$265,000 and generate cash inflows of ​$61,000 per year for 6 years. Using​ a(n) 9.28​% cost of​ capital, calculate each​ project's NPV, and make a recommendation based on your...
Emmar is considering investment in the best of two independent projects. Project A involves an overhaul...
Emmar is considering investment in the best of two independent projects. Project A involves an overhaul of the existing system; it will cost $47,000 and generate cash inflows of $21,000 per year for the next 3 years. Project B involves replacement of the existing system; it will cost $276,000 and generate cash inflows of $61,000 per year for 6 years. Using an 8% cost of capital, calculate each project's NPV, and make a recommendation based on your findings.
Benton Exploration Company is considering two mutually exclusive projects. Project A has a cost of $10,000...
Benton Exploration Company is considering two mutually exclusive projects. Project A has a cost of $10,000 and is expected to generate net cash flows of $4,000 per year for 5 years. Project B has a cost of $25,000 and is expected to generate net cash flows of $9,000 per years for 5 years. Benton's cost of capital is 15 percent. Based on the net present value (NPV) method, which project should be undertaken? Group of answer choices Project A Project...
A firm needs to decide between two mutually exclusive projects. Project Alpha requires an initial investment...
A firm needs to decide between two mutually exclusive projects. Project Alpha requires an initial investment of $37,000 today and is expected to generate cash flows of $31,000 for the next 4 years. Project Beta requires an initial investment of $92,000 and is expected to generate cash flows of $36,400 for the next 8 years. The cost of capital is 10%. The projects can be repeated with no change in cash flows. What is the NPV of the project that...
A firm needs to decide between two mutually exclusive projects. Project Alpha requires an initial investment...
A firm needs to decide between two mutually exclusive projects. Project Alpha requires an initial investment of 50,000 today and is expected to generate cash flows of 51,000 for the next 3 years. Project Beta requires an intial investment of 85,000 and is expected to generate cash flows of 49,700 for the next 6 years. The cost of capital is 6%. The projects can be repeated with no charge in cash flows. What is the NPV of the project that...
The Dark Blue Furniture Company is considering two mutually exclusive expansion projects. Project X will cost...
The Dark Blue Furniture Company is considering two mutually exclusive expansion projects. Project X will cost $20,000 to implement, and will generate $10,000 each year in positive net, after-tax cash flows for the next 3 years. Project Y will cost $3,000 to implement, and will generate $2,500 in net, after-tax cash flows for the next 3 years. The firm’s WACC is 9%. a. Calculate the net present value of each project. Which is preferable by the NPV method? b. Calculate...
Haley’s Crockett Designs Inc. is considering two mutually exclusive projects. Both projects require an initial investment...
Haley’s Crockett Designs Inc. is considering two mutually exclusive projects. Both projects require an initial investment of $11,000 and are typical average-risk projects for the firm. Project A has an expected life of 2 years with after-tax cash inflows of $8,000 and $10,000 at the end of Years 1 and 2, respectively. Project B has an expected life of 4 years with after-tax cash inflows of $8,000 at the end of each of the next 4 years. The firm’s WACC...
Johnson Jets is considering two mutually exclusive projects. Project A has an up-front cost of $124,000...
Johnson Jets is considering two mutually exclusive projects. Project A has an up-front cost of $124,000 (CF0 = -124,000), and produces positive after-tax cash inflows of $30,000 a year at the end of each of the next six years. Project B has an up-front cost of $59,000(CF0 = -59,000) and produces after-tax cash inflows of $20,000 a year at the end of the next four years. Assuming the cost of capital is 10.5%, 1. Compute the equivalent annual annuity of...
Two mutually exclusive projects have an initial cost of $12,000. Project A produces cash inflows of...
Two mutually exclusive projects have an initial cost of $12,000. Project A produces cash inflows of $10,200, $8,700, and $3,500 for years 1 through 3 respectively. Project B produces cash inflows of $6,700, $3,500, and $12,600 for years 1 through 3 respectively. The required rate is 10 percent. which project would you choose to invest in and why?
Ace Inc. is evaluating two mutually exclusive projects—Project A and Project B. The initial cash outflow...
Ace Inc. is evaluating two mutually exclusive projects—Project A and Project B. The initial cash outflow is $50,000 for each project. Project A results in cash inflows of $15,625 at the end of each of the next five years. Project B results in one cash inflow of $99,500 at the end of the fifth year. The required rate of return of Ace Inc. is 10 percent. Ace Inc. should invest in: a. ​Project B because it has no cash inflows...