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the actual results from a project may vary significantly from the expected
results.
the initial costs will generally vary considerably from the estimated costs.
a project will never be accepted unless the payback period is met.
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 $
Should the company make the purchase?
No
Yes
44.Don Under Boomerang, Inc., is considering a new three-year expansion
project that requires an initial fixed asset investment of $2.64 million. The
fixed asset will be depreciated straight-line to zero over its three-year tax
life, after which it will be worthless. The project is estimated to generate
$2,060,000 in annual sales, with costs of $755,000. The tax rate is 35
percent and the required return is 13 percent.
What is the project’s NPV? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
NPV $