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Calculate the net present value of both projects

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Reference no: EM132934975

Question - Mobil Asphalt Paving Company has received two proposals for a new Asphalt Paving Machine. Information provided for each machine is as follows:

 

Big Boss Paver Model 700

Perfect Paver Model 777

Capital investment

$995,000

$575,000

Annual cash flows

$170,000

$95,000

Estimated useful life

10 years

10 years

Mobil Company uses a discount rate of 9% to evaluate both projects.

Note: Factor for the Present Value of an Ordinary Annuity 10 years @9% = 6.41766.

Required -

(a) Calculate the net present value of both projects.

(b) Calculate the profitability index for each project.

(c) Which project should Mobil accept?

Reference no: EM132934975

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