Problem 5:Platypus Corporation's managers have presented the company's management with two proposalsfor expanding its production capacity. Based on the following two different alternatives, whichproposal should they adopt?Cost of the Equipment RequiredProject 1$250,000Working Capital Investment Required0Annual Cash Inflows$65,000Maintenance cost in year 4$15,000Maintenance cost in year 60Salvage Value of Equipment in 8 Years$12,000Project 2$100,000$150,000$50,0000$15,0000Both projects have a life of 8 years. In 8 years Project 2's working capital will be released and beavailable to invest in other projects. The company has a discount rate of 16%Required:1) Calculate the net present value for each project.2) Based solely on the net present value of the project, which alternative would yourecommend the company invest in? Why?

NPV = sum C_t/(1 + r)^twhere:- ( C_t ) is the cash flow at time t,- r is the discount rate, and- t…

Answered: Problem 5: Platypus Corporation's…

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.15E

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APPLY THE CONCEPTS: Internal rate of return The Sutherland purchasing department has made revisions to their costs and annual cash flows for Project A and Project B, as outlined below. Project A Project B Project A's revised investment is $217,300. The Project B's revised investment is $116,700. project's life and cash flow have changed to 6 The project's life and cash flow have changed years and $47,000, respectively, while expenses to 5 years and $85,000 while expenses have been eliminated. reduced slightly to $55,000. Compute the internal rate of return factor for Project A and Project B and then identify each project's corresponding percentage from the PV ordinary annuity table. Note: Enter the IRR factor, to 5 decimal places. Project A: The calculated IRR factor is 4.62340 v and this value corresponds to which percentage in the present value of ordinary annuity table? Project B: The calculated IRR factor is 3.89 V and this value corresponds to which percentage in the present value…

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