NPV unequal lives. Singing Fish Fine Foods has $1, 820,000 for capital investments this year and is considering two potential projects for the funds. Project I 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 $500,000 for the next six years. If the appropriate discount rate for the deli expansion is 9.5% and the appropriate discount rate for the wine section is 9.0%, use the NPV to determine which project Singing Fish should choose for the store. Adjust the NPV for unequal lives with the equivalent annual annuity. Does the decision change? What is the adjusted NPV equivalent annual annuity of the wine section?
NPV unequal lives. Singing Fish Fine Foods has $1, 820,000 for capital investments this year and is considering two potential projects for the funds. Project I 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 $500,000 for the next six years. If the appropriate discount rate for the deli expansion is 9.5% and the appropriate discount rate for the wine section is 9.0%, use the NPV to determine which project Singing Fish should choose for the store. Adjust the NPV for unequal lives with the equivalent annual annuity. Does the decision change? What is the adjusted NPV equivalent annual annuity of the wine section?
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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Transcribed Image Text:NPV unequal lives. Singing Fish Fine Foods has $1,820,000 for capital investments this year and is
considering two potential projects for the funds. Project I 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 $500,000 for the next six years. If the appropriate discount rate for the deli expansion
is 9.5% and the appropriate discount rate for the wine section is 9.0%, use the NPV to determine which
project Singing Fish should choose for the store. Adjust the NPV for unequal lives with the equivalent
annual annuity. Does the decision change? What is the adjusted NPV equivalent annual annuity of the
wine section?
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