A company has a decision to make between two investment alternatives.The company requires a 10% return on investment.Predicted data is provided below:
$$\begin{array} { l rr }

&\underline{\text { Investment Y}} & \underline{\text { Investment Z}} \
\text {Projected after-tax net income}&\$ 40,000&\$ 42,000\
\text {Investment costs}&\$ 600,000&\$ 675,000\
\text {Estimated life}&6 \text { years }&6 \text { years }
\end{array}$$
The present value of an annuity for six years at 10% is 4.3553.This company uses straight-line depreciation.
Required:
a.Calculate the net present value for each investment.
b.Which investment should this company select? Explain.

Question

A company has a decision to make between two investment alternatives.The company requires a 10% return on investment.Predicted data is provided below:
 $$\begin{array} { l rr }

&\underline{\text { Investment  Y}} & \underline{\text { Investment  Z}} \
\text {Projected after-tax net income}&\$ 40,000&\$ 42,000\
\text {Investment costs}&\$ 600,000&\$ 675,000\
\text {Estimated life}&6 \text { years }&6 \text { years }
\end{array}$$ 
The present value of an annuity for six years at 10% is 4.3553.This company uses straight-line depreciation.
Required:
a.Calculate the net present value for each investment.
b.Which investment should this company select? Explain.

Quizplus · Accepted Answer

The Answer of A company has a decision to make between two investment alternatives.The company requires a 10% return on investment.Predicted data is provided below:
 $$\begin{array} { l rr }

&\underline{\text { Investment  Y}} & \underline{\text { Investment  Z}} \
\text {Projected after-tax net income}&\$ 40,000&\$ 42,000\
\text {Investment costs}&\$ 600,000&\$ 675,000\
\text {Estimated life}&6 \text { years }&6 \text { years }
\end{array}$$ 
The present value of an annuity for six years at 10% is 4.3553.This company uses straight-line depreciation.
Required:
a.Calculate the net present value for each investment.
b.Which investment should this company select? Explain.

A Company Has a Decision to Make Between Two Investment