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    Capital Budgeting-unequal lives

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    E10-4
    Outcast, Inc., has hired you to advise the firm on a capital budgeting issue involving two unequal-lived, mutually exclusive projects, M and N. The cash flows for each project are presented in the table at the top of the facing page. Calculate the NPV and the annualized net present value (ANPV) for each project using the firm's cost of capital of 8%. Which project would you recommend?
    Project M Project N
    Initial investment
    $35,000
    $55,000
    Year Cash inflows
    1
    $12,000
    $18,000
    2
    25,000
    15,000
    3
    30,000
    25,000
    4
    ?
    10,000
    5
    ?
    8,000
    6
    ?
    5,000
    7
    ?
    5,000

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    https://brainmass.com/business/net-present-value/200910

    Solution Preview

    Outcast, Inc., has hired you to advise the firm on a capital budgeting issue involving two unequal-lived, mutually exclusive projects, M and N. The cash flows for each project are presented in the table at the top of the facing page. Calculate the NPV and the annualized net present value (ANPV) for each project using the firm's cost of capital of 8%. Which project would you recommend?
       Project M Project N
    Initial investment $35,000 $55,000
    Year Cash inflows

    1 $12,000 $18,000
    2 25,000 15,000
    3 30,000 25,000
    4 ? 10,000
    5 ? 8,000
    6 ? 5,000
    7 ? 5,000

    Step 1: ...

    Solution Summary

    The solution evaluates 2 mutually exclusive projects with unequal lives.

    $2.19

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