Highways, Inc. is trying to decide whether to purchase a new pavement melting machine, purchase a new mobile cement mixer or to computerize its entire estimating, ordering and inventory system. All of the alternatives are viewed as having the same ten year project life and none are expected to have any salvage value. However, different project prices are applicable to each and each has a different expected stream of annual net cash inflows. The firm's managers believe that a discount rate of 9 percent is appropriate for evaluating the alternatives. Data are as follows:

After examining the project prices, management finds it has sufficient capital budget to complete two of them. Assuming that the cash inflows from the project are independent of one another, which two projects should be undertaken?

Question

Highways, Inc. is trying to decide whether to purchase a new pavement melting machine, purchase a new mobile cement mixer or to computerize its entire estimating, ordering and inventory system. All of the alternatives are viewed as having the same ten year project life and none are expected to have any salvage value. However, different project prices are applicable to each and each has a different expected stream of annual net cash inflows. The firm's managers believe that a discount rate of 9 percent is appropriate for evaluating the alternatives. Data are as follows:
  
After examining the project prices, management finds it has sufficient capital budget to complete two of them. Assuming that the cash inflows from the project are independent of one another, which two projects should be undertaken?

Quizplus · Accepted Answer

The Answer of Highways, Inc. is trying to decide whether to purchase a new pavement melting machine, purchase a new mobile cement mixer or to computerize its entire estimating, ordering and inventory system. All of the alternatives are viewed as having the same ten year project life and none are expected to have any salvage value. However, different project prices are applicable to each and each has a different expected stream of annual net cash inflows. The firm's managers believe that a discount rate of 9 percent is appropriate for evaluating the alternatives. Data are as follows:
  
After examining the project prices, management finds it has sufficient capital budget to complete two of them. Assuming that the cash inflows from the project are independent of one another, which two projects should be undertaken?