Cranjet Industries is expanding its product line and its production capacity. Th
ID: 2754452 • 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 15.00 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?
(a) both projects
(b) only the production capacity expansion
(c) neither projectonly the product line expansion.
Year Product Line Expansion Production Capacity Expansion 0 -$3,123,400 -$9,083,100 1 550,300 1,934,900 2 703,400 1,934,900 3 953,800 1,934,900 4 886,200 2,784,800 5 1,055,200 3,477,400Explanation / Answer
a)
Compute the Net Present value.
b)
As both the projects shows negative Net present value thus neither the products are accepted.
Year Product Line Expansion Production Capacity Expansion Cash Flow PV Factor @ 15% Present value Cash Flow PV Factor @ 15% Present value [a] [b] [c =a*b] 0 -3123400 1 -3123400 -9083100 1 -9083100 1 550300 0.86956522 478521.7391 1934900 0.86956522 1682521.739 2 703400 0.75614367 531871.4556 1934900 0.75614367 1463062.382 3 953800 0.65751623 627138.9825 1934900 0.65751623 1272228.158 4 886200 0.57175325 506687.7262 2784800 0.57175325 1592218.438 5 1055200 0.49717674 524620.8911 3477400 0.49717674 1728882.379 Net Present value = sum of present Value = -454559.205 -1344186.9