FIN 571 Course Great Wisdom / tutorialrank.com FIN 571 Course Great Wisdom / tutorialrank.com | Page 12

42.Wilson’s Market is considering two mutually exclusive projects
that will not be repeated. The required rate of return is 13.9 percent
for Project A and 12.5 percent for Project B. Project A has an initial
cost of $54,500, and should produce cash inflows of $16,400,
$28,900, and $31,700 for Years 1 to 3, respectively. Project B has an
initial cost of $69,400, and should produce cash inflows of $0,
$48,300, and $42,100, for Years 1 to 3, respectively. Which project,
or projects, if either, should be accepted and why?
Project B; because it has the largest total cash inflow
Project A; because its NPV is positive while Project B’s NPV is
negative
Project B; because it has a negative NPV which indicates acceptance
neither project; because neither has an NPV equal to or greater than
its initial cost
Project A; because it has the higher required rate of return

43.Flatte Restaurant is considering the purchase of a $11,000 soufflé
maker. The soufflé maker has an economic life of four years and will
be fully depreciated by the straight-line method. The machine will
produce 2,500 soufflés per year, with each costing $2.90 to make and
priced at $5.75. Assume that the discount rate is 16 percent and the
tax rate is 34 percent.

What is the NPV of the project? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV $