NPV unequal lives. Singing Fish Fine Foods has $1,980,000 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 $570,000 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 $530,000 for the next six years. If the appropriate discount rate for the deli expansion is 9.6% and the appropriate discount rate for the wine section is 9.1%, 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?
NPV unequal lives. Singing Fish Fine Foods has $1,980,000 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 $570,000 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 $530,000 for the next six years. If the appropriate discount rate for the deli expansion is 9.6% and the appropriate discount rate for the wine section is 9.1%, 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?
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
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Transcribed Image Text:NPV unequal lives. Singing Fish Fine Foods has $1,980,000 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 $570,000 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 $530,000 for the next six years. If the appropriate discount rate for the deli
expansion is 9.6% and the appropriate discount rate for the wine section is 9.1%, 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?
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