Use the NPV method to determine whether McKnight Products should invest in the f

Question

Use the NPV method to determine whether McKnight Products should invest in the following projects: . Project A costs $260,000 and offers eight annual net cash inflows of $56,000. McKnight Products requires an annual return of 12% on projects like A. Project B costs $375,000 and offers nine annual net cash inflows of $71,000. McKnight Products demands an annual return of 10% on investments of this nature. (Click the icon to view the present value table) (Click the icon to view the future value table.) (Click he icon to view the present value annuity table. Click the icon to view the future value annuity table. Requirement What is the NPV of each project? What is the maximum acceptable price to pay for each project?

Explanation / Answer

NPV of Project A = (56000*4.968)-260000= 18208 Maximum acceptable price = 260000+18208 = 278208 Yes, invest NPV of Project B = (71000*5.759)-375000= 33889 Maximum acceptable price = 375000+33889= 408889 Yes, invest

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