Cranjet Industries is expanding its product line and its production capacity. Th
ID: 2768103 • 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 18.74 percent for such projects. Year Product Line Expansion Production Capacity Expansion 0 -$2,163,300 -$6,899,100 1 467,900 2,565,400 2 770,300 2,565,400 3 901,800 2,565,400 4 1,066,000 2,455,400 5 1,056,400 3,548,500
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.
NPV of product line expansion is $___________________ NPV of production capacity expansion is $_________________ b.
Should both projects be accepted? or either? or neither? Cranjet should accept:
a-both projects
b-neither project
c-only the product line expansion
d-only the production capacity expansion
Explanation / Answer
NPV is given by
-C0 + C1/(1+d) + C2/(1+d)^2 + C3/(1+d)^3 .....+ Cn/(1+d)^4
As NPV is posstive for both both the projects should be accepted
1 1 2 3 4 5 -2163300 467900 770300 901800 1066000 1056400 NPV1 117539.01 -6899100 2565400 2565400 2565400 2455400 3548400 NPV2 587737.77