E12-27A (similar to) Use the NPV method to determine whether Vargas Products sho
ID: 2535323 • Letter: E
Question
E12-27A (similar to) Use the NPV method to determine whether Vargas Products should invest in the following projects: Project A costs $275 000 and offers seven annual net cash inflows of $57,000. Varga Products requires an annual return o Pro ec B costs $385,000 and offers nine annual net cash in o s of $70,000 Vargas Products deman sana nu a return o d%, on roects like A $3065,000 andofers nine annsh intows of $57,00. Vargas 4%, o investments of his nature. (Glick the loon to view the present value annuity table)(Click the ioon to view the present value table) (Click the icon to view the future value annuity table.) (Click the icon to view the future value table.) Requirement What is the NPV of each project? What is the maximum acceptable price to pay for each project? Calculate the NPV of each project. (Round your answers to the nearest whole dollar. Use parentheses or a minus sign for negative net present values.) The NPV of Project A is $Explanation / Answer
Net present value = Present value of cash inflow-Present value of cash outflow
Project A = (57000*4.039)-275000 = -44777
Project B = (70000*4.946)-385000 = -38780
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