Cranjet Industries is expanding its product line and its production capacity. Th
ID: 2725937 • Letter: C
Question
Cranjet Industries is expanding its product line and its production capacity. The costs and expected cash flows of the two independent projects are given in the following table. The firm uses a discount rate of 17.40 percent for such projects.
a. What are the NPVs of the two projects? (Enter negative amounts using negative sign e.g. -45.25. Round intermediate calculations and final answers to 0 decimal places, e.g. 5,275.)
b. Should both projects be accepted? or either? or neither?
Explanation / Answer
Since NPV of of production line expansion is negative hence its should not be accepted where as NPV of Production capcity expansion is positive hence this should be accpted.
Year
Product Line Expansion
Dis factor @17.40%
PV of cash flows
0
-25,56,400
1.000
-25,56,400.00
1
5,11,400
0.852
4,35,604.77
2
10,21,700
0.726
7,41,288.39
3
7,86,500
0.618
4,86,065.10
4
7,29,400
0.526
3,83,966.53
5
9,54,000
0.448
4,27,767.60
NPV
-81,707.61
Year
Production Capacity Expansion
Dis factor @17.40%
PV of cash flows
0
-71,01,700
1.000
-71,01,700.00
1
27,59,100
0.852
23,50,170.36
2
27,59,100
0.726
20,01,848.69
3
27,59,100
0.618
17,05,152.20
4
38,30,700
0.526
20,16,534.95
5
31,36,300
0.448
14,06,297.20
NPV
23,78,303.40
Year
Product Line Expansion
Dis factor @17.40%
PV of cash flows
0
-25,56,400
1.000
-25,56,400.00
1
5,11,400
0.852
4,35,604.77
2
10,21,700
0.726
7,41,288.39
3
7,86,500
0.618
4,86,065.10
4
7,29,400
0.526
3,83,966.53
5
9,54,000
0.448
4,27,767.60
NPV
-81,707.61
Year
Production Capacity Expansion
Dis factor @17.40%
PV of cash flows
0
-71,01,700
1.000
-71,01,700.00
1
27,59,100
0.852
23,50,170.36
2
27,59,100
0.726
20,01,848.69
3
27,59,100
0.618
17,05,152.20
4
38,30,700
0.526
20,16,534.95
5
31,36,300
0.448
14,06,297.20
NPV
23,78,303.40