Adequate information: Cost of investment of headache-only pills = $28,000,000 Economic life of headache-only pills = 3 years Number of packages produce for headache-only pills = 3,200,000 Price per package of headache-only pills = $8.25 Production cost per package of headache-only pills = $3.60 Market value of headache and arthritis pills project = $1,000,000 Cost of investment of headache and arthritis pills project = $36,000,000 Economic life of headache and arthritis pills project = 3 years Number of packages produce for headache and arthritis pills project = 3,200,000 Price per package of headache and arthritis pills project = $8.25 Production cost per package of headache and arthritis pills project = $4.55 Inflation rate = 3% or 0.03 Tax rate = 22% or 0.22 Appropriate real discount rate = 5% or 0.05 To determine: The product that should be chosen by the company. Introduction: The term Net present value refers to the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow . The decision criteria of net present value are that in the case of the mutually exclusive project, the project having the higher net present value should be selected.

Question

Want to see the full answer?

Answer 1

Question

Chapter 6, Problem 41QAP

Summary Introduction

Adequate information:

Cost of investment of headache-only pills = $28,000,000

Economic life of headache-only pills = 3 years

Number of packages produce for headache-only pills = 3,200,000

Price per package of headache-only pills = $8.25

Production cost per package of headache-only pills = $3.60

Market value of headache and arthritis pills project = $1,000,000

Cost of investment of headache and arthritis pills project = $36,000,000

Economic life of headache and arthritis pills project = 3 years

Number of packages produce for headache and arthritis pills project = 3,200,000

Price per package of headache and arthritis pills project = $8.25

Production cost per package of headache and arthritis pills project = $4.55

Inflation rate = 3% or 0.03

Tax rate = 22% or 0.22

Appropriate real discount rate = 5% or 0.05

To determine: The product that should be chosen by the company.

Introduction: The term Net present value refers to the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

The decision criteria of net present value are that in the case of the mutually exclusive project, the project having the higher net present value should be selected.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Question 25 Jasmine bought a house for $225 000. She already knows that for the first $200 000, the land transfer tax will cost $1650. Calculate the total land transfer tax. (2 marks) Land Transfer Tax Table Value of Property Rate On the first $30 000 0% On the next $60 000 0.5% (i.e., $30 001 to $90 000) On the next $60 000 1.0% (i.e., $90 001 to $150 000) On the next $50 000 1.5% (i.e., $150 001 to $200 000) On amounts in excess of $200 000 2.0% 225000–200 000 = 825000 25000.002 × 25000 1= 8500 16 50+ 500 2 marks

Suppose you deposit $1,000 today (t = 0) in a bank account that pays an interest rate of 7% per year. If you keep the account for 5 years before you withdraw all the money, how much will you be able to withdraw after 5 years? Calculate using formula. Calculate using year-by-year approach. Find the present value of a security that will pay $2,500 in 4 years. The opportunity cost (interest rate that you could earn from alternative investments) is 5%. Calculate using the formula. Calculate using year-by-year discounting approach. Solve for the unknown in each of the following: Present value Years Interest rate Future value $50,000 12 ? $152,184 $21,400 30 ? $575,000 $16,500 ? 14% $238,830 $21,400 ? 9% $213,000 Suppose you enter into a monthly deposit scheme with Chase, where you have your salary account. The bank will deduct $25 from your salary account every month and the first payment (deduction) will be made…

PowerPoint presentation of a financial analysis that includes the balance sheet, income statement, and statement of cash flows for Nike and Adidas. Your analysis should also accomplish the following: Include the last three years of data, and evaluate the trends in the data. Summarize the footnotes on each of the statements. Compute the earnings per share for the three years. Compare the two companies and determine the insights gathered from the trend analysis.