Answered

Westonci.ca is the best place to get answers to your questions, provided by a community of experienced and knowledgeable experts. Explore a wealth of knowledge from professionals across various disciplines on our comprehensive Q&A platform. Our platform offers a seamless experience for finding reliable answers from a network of knowledgeable professionals.

Kenner Company is considering two projects. Project A Project B Initial investment $85,000 $24,000 Annual cash flows $20,676 $ 6,011 Life of the project 6 years 5 years Depreciation per year $14,167 $ 4,800 Suppose that Kenner Company requires a minimum rate of return of 8%. Which project is better in terms of net present value

Sagot :

Parrain

Answer: Project A is better as it has a higher NPV of $76,075.70

Explanation:

Annual cashflow of Project A = Annual cashflow + Depreciation

= 20,676 + 14,167

= $34,843

Project B cashflow = 6,011 + 4,800

= $10,811

As these are constant amounts, they are to be considered annuities.

Find the present value of these annuities and deduct the initial investment from them for the NPV.

Present value of annuity = Annuity * Present value interest factor of annuity, 8%, number of years

Project A NPV = (34,843 * Present value interest factor of annuity, 8%, 6 periods)  - 85,000

= (34,843 * 4.6229) - 85,000

= $76,075.70

Project B NPV = (10,811 * Present value interest factor of annuity, 8%, 5 periods)  - 24,000

= (10,811 * 3.9927) - 24,000

= $19,165.08

Project A is better as it has a higher NPV of $76,05.70

View image Parrain
Thanks for using our platform. We're always here to provide accurate and up-to-date answers to all your queries. Thanks for using our platform. We aim to provide accurate and up-to-date answers to all your queries. Come back soon. We're here to help at Westonci.ca. Keep visiting for the best answers to your questions.