Mitchell, Inc., is considering two mutually exclusive projects. Project 1 requires an investment of £80,000, while Project 2 requires an investment of £90,000.
Cash revenues and cash costs for each project are shown below:
The company estimates that at the end of the fourth year Project 1 would have a salvage value of £10,000 and Project 2 would have a salvage value of £5,000.
Required:

a.
Determine the net present value of EACH project using an 8 percent discount rate.
b.
Prepare a memorandum for management stating your recommendation. Include supporting calculations in good form.

Question

Mitchell, Inc., is considering two mutually exclusive projects. Project 1 requires an investment of £80,000, while Project 2 requires an investment of £90,000.
Cash revenues and cash costs for each project are shown below:
The company estimates that at the end of the fourth year Project 1 would have a salvage value of £10,000 and Project 2 would have a salvage value of £5,000.
Required:
  
a.
Determine the net present value of EACH project using an 8 percent discount rate.
b.
Prepare a memorandum for management stating your recommendation. Include supporting calculations in good form.

Quizplus · Accepted Answer

The Answer of Mitchell, Inc., is considering two mutually exclusive projects. Project 1 requires an investment of £80,000, while Project 2 requires an investment of £90,000.
Cash revenues and cash costs for each project are shown below:
The company estimates that at the end of the fourth year Project 1 would have a salvage value of £10,000 and Project 2 would have a salvage value of £5,000.
Required:
  
a.
Determine the net present value of EACH project using an 8 percent discount rate.
b.
Prepare a memorandum for management stating your recommendation. Include supporting calculations in good form.