A company is considering two alternative methods of producing a new product.The relevant data concerning the alternatives are presented below. At the end of the useful life of whatever equipment is chosen the product will be discontinued.The company's tax rate is 50 percent and its cost of capital is 10 percent.
a.Calculate the net present value of each alternative.
b.Calculate the benefit cost ratio for each alternative.
c.Calculate the internal rate of return for each alternative.
d.If the company is not under capital rationing,which alternative should be chosen?
Why?

Question

A company is considering two alternative methods of producing a new product.The relevant data concerning the alternatives are presented below.  At the end of the useful life of whatever equipment is chosen the product will be discontinued.The company's tax rate is 50 percent and its cost of capital is 10 percent.
a.Calculate the net present value of each alternative.
b.Calculate the benefit cost ratio for each alternative.
c.Calculate the internal rate of return for each alternative.
d.If the company is not under capital rationing,which alternative should be chosen?
 Why?

Quizplus · Accepted Answer

The Answer of A company is considering two alternative methods of producing a new product.The relevant data concerning the alternatives are presented below.  At the end of the useful life of whatever equipment is chosen the product will be discontinued.The company's tax rate is 50 percent and its cost of capital is 10 percent.
a.Calculate the net present value of each alternative.
b.Calculate the benefit cost ratio for each alternative.
c.Calculate the internal rate of return for each alternative.
d.If the company is not under capital rationing,which alternative should be chosen?
 Why?

A Company Is Considering Two Alternative Methods of Producing a New