NPV unequal lives. Singing Fish Fine Foods has $1,820,000 for capital investments this year and isconsidering two potential projects for the funds. Project I is updating the store's deli section foradditional food service. The estimated after-tax cash flow of this project is $610,000 per year for thenext five years. Project 2 is updating the store's wine section. The estimated annual after-tax cash flowfor this project is $500,000 for the next six years. If the appropriate discount rate for the deli expansionis 9.5% and the appropriate discount rate for the wine section is 9.0%, use the NPV to determine whichproject Singing Fish should choose for the store. Adjust the NPV for unequal lives with the equivalentannual annuity. Does the decision change? What is the adjusted NPV equivalent annual annuity of thewine section?

The net present worth of an investment will be used by an investor to assess the investment's…

Answered: NPV unequal lives. Singing Fish Fine…

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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A Municipality needs a new fleet of busses. They have a choice between a diesel fuel powered fleet and a natural gas powered fleet. The Diesel fuel fleet has an initial cost of $50,000,000. The annual maintenance is $1,000,000 per year, each and every year of the 10 years life expectancy of the fleet. In addition, there will be a carbon emissions tax that starts at $250,000 in year 2, and increases by $250,000 each and every year after that. At the end of the ten years the busses can be sold for $5,000,000. The Natural Gas fleet can be purchased for $60,000,000. The annual maintenance is $800,000 per year. There is no carbon tax on the fleet. However, there is a 65% chance of a $5,000,000 one time "Special Maintenance cost at year 7. Because of certain toxic parts on the bus engines, the municipality will have to pay $5,000,000 and the end of the bus life to dispose of them. Use the present value approach to determine which fleet is more cost effective. The cost of money is 6% For the…
MIRR unequal lives. Singing Fish Fine Foods has $2,000,000 for capital investments this year and is considering two potential projects for the funds. Project 1 is updating the store's deli section for additional food service. The estimated after-tax cash flow of this project is $610,000 per year for the next five years. Project 2 is updating the store's wine section. The estimated annual after-tax cash flow for this project is $510,000 for the next six years. The appropriate discount rate for the deli expansion is 9.3% and the appropriate discount rate for the wine section is 9.0%. What are the MIRRS for the Singing Fish Fine Foods projects? What are the MIRRS when you adjust for unequal lives? Do the MIRR adjusted for unequal lives change the decision based on MIRRS? Hint Take all cash flows to the same ending period as the longest project BOOOD If the appropriate reinvestment rate for the deli expansion is 9.3%, what is the MIRR of the deli expansion? 12.92% (Round to two decimal…
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