Cullumber Industries is expanding its product line and its production capacity. The costs and expected cash flows of the two independent projects are given in the following table. The firm uses a discount rate of 14.98 percent for such projects. Year Product Line Expansion Production Capacity Expansion 0 -$2,426,500 -$6,756,300 1 501,800 2,381,500 2 853,000 2,381,500 3 853,000 2,381,500 4 853,000 3,975,200 5 853,000 3,975,200 a. What are the NPVs of the two projects? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.) NPV of product line expansion is $ NPV of production capacity expansion is $ b. Should both projects be accepted? or either? or neither? Explain your reasoning.
Cullumber Industries is expanding its product line and its production capacity. The costs and expected cash flows of the two independent projects are given in the following table. The firm uses a discount rate of 14.98 percent for such projects. Year Product Line Expansion Production Capacity Expansion 0 -$2,426,500 -$6,756,300 1 501,800 2,381,500 2 853,000 2,381,500 3 853,000 2,381,500 4 853,000 3,975,200 5 853,000 3,975,200 a. What are the NPVs of the two projects? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.) NPV of product line expansion is $ NPV of production capacity expansion is $ b. Should both projects be accepted? or either? or neither? Explain your reasoning.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Cullumber Industries is expanding its product line and its production capacity. The costs and expected cash flows of the two independent projects are given in the following table. The firm uses a discount rate of 14.98 percent for such projects.
| Year | Product Line Expansion | Production Capacity Expansion | ||||
| 0 | -$2,426,500 | -$6,756,300 | ||||
| 1 | 501,800 | 2,381,500 | ||||
| 2 | 853,000 | 2,381,500 | ||||
| 3 | 853,000 | 2,381,500 | ||||
| 4 | 853,000 | 3,975,200 | ||||
| 5 | 853,000 | 3,975,200 |
a. What are the NPVs of the two projects? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.)
| $ | ||
| NPV of production capacity expansion is | $ |
b. Should both projects be accepted? or either? or neither? Explain your reasoning.
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