You work for an outdoor play structure manufacturing company and are trying to decide between the following two projects: Year-End Cash Flows ($ thousanch) 2 21 51 Project 0 Playhouse (minor project) -29 Fort (major poject) -79 1 17 39 You can undertake only one project. If your cost of capital is 6%, which one should you choose?

You work for an outdoor play structure manufacturing company and are trying to decide between the following two projects: Year-End Cash Flows ($ thousanch) 2 21 51 Project 0 Playhouse (minor project) -29 Fort (major poject) -79 1 17 39 You can undertake only one project. If your cost of capital is 6%, which one should you choose?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

You work for an outdoor play structure manufacturing company and are trying to
decide between the following two projects:
Year-End Cash Flows ($ thousanch)
2
21
51
Project
0
Playhouse (minor project) -29
Fort (major poject)
-79
1
17
39
You can undertake only one project. If your cost of capital is
6%, which one should you choose?
Playhouse because the incremental IRR is 2.52%
O Playhouse because the IRR of Fort is lower
O Not sure, it depends
O Fort because the incremental IRR is 2.52%

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