Reference no: EM131359892
A Company is considering two alternative methods of producing a new product. The relevant data concerning the alternatives are presented below.
Alternative I Alternative II
Initial Investment $50,000 $110,000
Annual receipts $36,000 $50,000
Annual Disbursements $16,000 $10,000
Annual depreciation $12,000 $16,000
Expected Life 5 years 7 years
Salvage Value $0 $0
At the end of the useful life of whatever equipment is chosen, the product will be discontinued. The company's tax rate is 50 percent, and its cost of capital is 11 percent.
1. Calculate the Net Present Value of each alternative.
2. Calculate the internal rate of return for each alternative.
3. which Alternative should the company chose?
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