Exercise 2 The Whichone Company is considering a new popper for one of its portable caramel popcorn stands The analysis is narrowed to the "Pak" or the "Boom". Information on the two devices is: BOOM P60,000 24,000 5,000 5 years PAK P90,000 34,000 Purchase price Annual cash inflows Salvage value in five years 8,000 Useful life Other devices will do the job equally as well. Whichone uses a 16% required rate of return. 5 years REQUIRED: a. Which machine has the higher NPV? b. Using the profitability index, which machine is more attractive? c. If Whichone has the capacity to invest in only one of either PAK or BOOM, which of the two shoulo Whichone choose?
Exercise 2 The Whichone Company is considering a new popper for one of its portable caramel popcorn stands The analysis is narrowed to the "Pak" or the "Boom". Information on the two devices is: BOOM P60,000 24,000 5,000 5 years PAK P90,000 34,000 Purchase price Annual cash inflows Salvage value in five years 8,000 Useful life Other devices will do the job equally as well. Whichone uses a 16% required rate of return. 5 years REQUIRED: a. Which machine has the higher NPV? b. Using the profitability index, which machine is more attractive? c. If Whichone has the capacity to invest in only one of either PAK or BOOM, which of the two shoulo Whichone choose?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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exer 2
Transcribed Image Text:Exercise 2
The Whichone Company is considering a new popper for one of its portable caramel popcorn stands.
The analysis is narrowed to the "Pak" or the "Boom". Information on the two devices is:
Purchase price
Annual cash inflows
Salvage value in five years 8,000
PAK
P90,000
34,000
BOOM
P60,000
24,000
5,000
5 years
Useful life
5 years
Other devices will do the job equally as well. Whichone uses a 16% required rate of return.
REQUIRED:
a. Which machine has the higher NPV?
b. Using the profitability index, which machine is more attractive?
c. If Whichone has the capacity to invest in only one of either PAK or BOOM, which of the two should
Whichone choose?
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