Nbspthe committee has selected a rate of 15 for purposes

Reference no: EM13576041

The investment committee of Jake's Brewery Inc. is evaluating two projects. The projects have different useful lives, but each requires an investment of $145,000. The estimated net cash flows from each project are as follows:

Project I Project II

1 40,000 55,000

2 40,000 55,000

3 40,000 55,000

4 40,000 55,000

5 40,000

6 40,000

The committee has selected a rate of 15% for purposes of net present value analysis. It is also estimated that the residual value at the end of each project's lif is $0, but at the end of the fourth year, Project I's residual value would be $60,000.

1) For each project, compute the net present value. (Ignore the unequal lives of the projects)

2) For each project, compute the net present value, assuming that Project I is adjusted to a 4-year life for purposes of analysis.

3) Prepare a report to the investment committee, providing your advice on the relative merits of the two projects

Reference no: EM13576041

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