Time 0 Time 1 Time 2 Time 3 Project A - 10,000 5,000 4,000 3,000 O Project B Project B 10,000 If WiseGuy Inc is choosing one of the above mutually exclusive projects (Project A or Project B), given a discount rate of 11%, which should the company choose? O Project A 4,000 3,000 10,000 Neither project - both have negative NPV. O Both projects - both have positive NPV.

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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**Project Cash Flows:**

| Time  | Project A | Project B |
|-------|-----------|-----------|
| Time 0 | -10,000   | -10,000   |
| Time 1 | 5,000     | 4,000     |
| Time 2 | 4,000     | 3,000     |
| Time 3 | 3,000     | 10,000    |

**Investment Decision Analysis:**

If WiseGuy Inc is choosing one of the above mutually exclusive projects (Project A or Project B), given a discount rate of 11%, which should the company choose?

- ☐ Neither project - both have negative NPV.
- ☐ Project B
- ☐ Project A
- ☐ Both projects - both have positive NPV.
Transcribed Image Text:**Project Cash Flows:** | Time | Project A | Project B | |-------|-----------|-----------| | Time 0 | -10,000 | -10,000 | | Time 1 | 5,000 | 4,000 | | Time 2 | 4,000 | 3,000 | | Time 3 | 3,000 | 10,000 | **Investment Decision Analysis:** If WiseGuy Inc is choosing one of the above mutually exclusive projects (Project A or Project B), given a discount rate of 11%, which should the company choose? - ☐ Neither project - both have negative NPV. - ☐ Project B - ☐ Project A - ☐ Both projects - both have positive NPV.
**Vernon-Nelson Chemicals** is planning to release a new brand of insecticide, Bee-Safe, that will kill many insect pests but not harm useful pollinators. Buying new equipment to manufacture the product will cost **$30 million**, and there will be an additional **$2 million** cost to reconfigure the existing plant. The equipment is expected to have a lifetime of **nine years** and will be depreciated by the straight-line method over its lifetime. The firm expects that they should be able to sell **1,500,000 gallons** per year at a price of **$54 per gallon**. It will take **$40 per gallon** to manufacture and support the product. If Vernon-Nelson's marginal tax rate is **40%**, what are the incremental earnings in year 3 of this project?

- ○ $17.7 million
- ○ $10.6 million
- ○ $7.1 million
- ○ $21.0 million
Transcribed Image Text:**Vernon-Nelson Chemicals** is planning to release a new brand of insecticide, Bee-Safe, that will kill many insect pests but not harm useful pollinators. Buying new equipment to manufacture the product will cost **$30 million**, and there will be an additional **$2 million** cost to reconfigure the existing plant. The equipment is expected to have a lifetime of **nine years** and will be depreciated by the straight-line method over its lifetime. The firm expects that they should be able to sell **1,500,000 gallons** per year at a price of **$54 per gallon**. It will take **$40 per gallon** to manufacture and support the product. If Vernon-Nelson's marginal tax rate is **40%**, what are the incremental earnings in year 3 of this project? - ○ $17.7 million - ○ $10.6 million - ○ $7.1 million - ○ $21.0 million
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