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Discuss what is the maximum acceptable price to pay

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1. E12-27A Calculate NPV-equal annual cash inflows
Use the NPV method to determine whether Olde West Products should invest in the following projects:

• Project A costs $290,000 and offers seven annual net cash inflows of $63,000. Olde West Products requires an annual return of 14% on projects like A.

• Project B costs $395,000 and offers ten annual net cash inflows of $71,000. Olde West Products demands an annual return of 10% on investments of this nature.

Requirement

What is the NPV of each project? What is the maximum acceptable price to pay for each project?

2. E12-28A Calculate IRR-equal cash inflows

Refer to Olde West Products in E12-27A. Compute the IRR of each project and use this information to identify the better investment.

 

Reference no: EM131758439

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