Use the following information to answer to Questions 17 and 18. Comfy Home is considering one of two mutually exclusive investments. Comfy Home's cost of capital is 10% Ignore the effects of taxes. Project A Comfy Home will purchase a specialized candle mold machine that will allow it to place it in service on 12/31/2021. The machine will be depreciated straight-line < $14,000 every year for 5 years. Discount rate 10% Year Cash Flows 12/31/21 $ (40,000) 1 12/31/22 2 12/31/23 3 12/31/24 14,000 14,000 14,000 4 12/31/25 14,000 5 12/31/26 14,000 $ 30,000 Project B Comfy Home will purchase a patent for several perfumes it will use in its candles. I its useful life of 9 years. Comfy Home expects the patent to generate net cash flow Year 12/31/21 1 12/31/22 Cash Flows $ (40,000) 10,000 2 12/31/23 10,000 3 12/31/24 10,000 4 12/31/25 10,000 5 12/31/26 10,000 6 12/31/27 10,000 7 12/31/28 10,000 8 12/31/29 10,000 9 12/31/30 10,000 Total $ 50,000 17 What is the NPV of project B? 18 Which project should Comfy Home choose?
Use the following information to answer to Questions 17 and 18. Comfy Home is considering one of two mutually exclusive investments. Comfy Home's cost of capital is 10% Ignore the effects of taxes. Project A Comfy Home will purchase a specialized candle mold machine that will allow it to place it in service on 12/31/2021. The machine will be depreciated straight-line < $14,000 every year for 5 years. Discount rate 10% Year Cash Flows 12/31/21 $ (40,000) 1 12/31/22 2 12/31/23 3 12/31/24 14,000 14,000 14,000 4 12/31/25 14,000 5 12/31/26 14,000 $ 30,000 Project B Comfy Home will purchase a patent for several perfumes it will use in its candles. I its useful life of 9 years. Comfy Home expects the patent to generate net cash flow Year 12/31/21 1 12/31/22 Cash Flows $ (40,000) 10,000 2 12/31/23 10,000 3 12/31/24 10,000 4 12/31/25 10,000 5 12/31/26 10,000 6 12/31/27 10,000 7 12/31/28 10,000 8 12/31/29 10,000 9 12/31/30 10,000 Total $ 50,000 17 What is the NPV of project B? 18 Which project should Comfy Home choose?
Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
Problem 8P
Related questions
Question
What is the NPV of project B? Which project should comfy home choose?
Transcribed Image Text:Use the following information to answer to Questions 17 and 18.
Comfy Home is considering one of two mutually exclusive investments.
Comfy Home's cost of capital is 10%
Ignore the effects of taxes.
Project A
Comfy Home will purchase a specialized candle mold machine that will allow it to
place it in service on 12/31/2021. The machine will be depreciated straight-line <
$14,000 every year for 5 years.
Discount rate
10%
Year
Cash Flows
12/31/21
$
(40,000)
1 12/31/22
2 12/31/23
3 12/31/24
14,000
14,000
14,000
4 12/31/25
14,000
5 12/31/26
14,000
$
30,000
Project B
Comfy Home will purchase a patent for several perfumes it will use in its candles. I
its useful life of 9 years. Comfy Home expects the patent to generate net cash flow
Year
12/31/21
1 12/31/22
Cash Flows
$
(40,000)
10,000
2 12/31/23
10,000
3 12/31/24
10,000
4 12/31/25
10,000
5 12/31/26
10,000
6 12/31/27
10,000
7 12/31/28
10,000
8 12/31/29
10,000
9 12/31/30
10,000
Total
$
50,000
17 What is the NPV of project B?
18 Which project should Comfy Home choose?
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