1. Calculate the net present value for each project. 2. Calculate the simple rate of return for each product.3. Which of the two projects (if either) would you recommend that Batelco Inc. accept? Why? Batelco Inc. is considering two mutually exclusive projects A and B. Each project requires an initial investment as presented in the below table. The economiclife of the project A will be 5-Year's and Project B will be 6 years, and both projects carry same risk. Batelco Inc uses a discount rate of 12%. Afterconsidering the current economic situation Batelco Inc. has set a maximum payback period of 4 years and minimum return on investment (ROI) 18%. Afinancial analyst, prepared estimates of the annual revenues and costs associated with each project as in the below table:Projects A240,000Projects B470,000Cost of equipmentWorking Capital neededOverhaul of the equipment in60,00080,0001200014000two yearsAnnual revenues and costs:Sales revenues375,000300,000Variable expenses180,00090,000Depreciation expense48,00078,333Fixed out-of-pocket operating90,00070,000costsLife of Project5 year6 yearsyear of the project A and project B respectively, for investment elsewhere within the company.The working capital will be released 5th and 6thRequired:

Net present value is the difference between the present value of cash flow and initial investment of…

years, proje arry same risk. sidering the current economic situation Batelco Inc. has set a maximum payback period of 4 years an- ncial analyst, prepared estimates of the annual revenues and costs associated with each project as in the be Projects A Projects Cost of equipment 240,000 470,00 60,000 Working Capital needed Overhaul of the equipment in 12000 two years Annual revenues and costs: Sales revenues 375,000 Variable expenses 180,000 Depreciation expense 48,000 Fixed out-of-pocket operating 90.000 80,000 14000 300,0 90,00 78,33 70.0

years, proje arry same risk. sidering the current economic situation Batelco Inc. has set a maximum payback period of 4 years an- ncial analyst, prepared estimates of the annual revenues and costs associated with each project as in the be Projects A Projects Cost of equipment 240,000 470,00 60,000 Working Capital needed Overhaul of the equipment in 12000 two years Annual revenues and costs: Sales revenues 375,000 Variable expenses 180,000 Depreciation expense 48,000 Fixed out-of-pocket operating 90.000 80,000 14000 300,0 90,00 78,33 70.0

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...

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