Accounting Information Systems 1st Edition by Vernon Richardson,Chengyee Chang ,Rod Smith

Exercise 2

Consider two projects. Project 1 costs $272,000 and returns $60,000 per year for 8 years. Project 2 costs $380,000 and returns $70,000 per year. Project 2 is determined as less risky, so your company only requires an 8 percent minimum annual return compared to10 percent for project 1. What is the NPV of each project? What is the absolute maximum that the company should consider investing in each project?