1. Discount rate is 9.6%, what is the NPV of the deli expansion? 2. Discount rat
ID: 2709470 • Letter: 1
Question
1. Discount rate is 9.6%, what is the NPV of the deli expansion?
2. Discount rate is 9.2%, what is the NPV of the wine selection?
3. Based on the NPV, Singing Fish Foods should pic ______ project?
4. What is the adjusted NPV equivalant annual annuityof the Deli espansion and Wine Section?
NPV unequal lives. Singing Fish Fine Foods has $2,060,000 for capital investments this year and is considering two potential projects for the funds. Project 1 is updating the store's deli section for additional food service. The estimated after-tax cash flow of this project is $610,000 per year for the next five years. Project 2 is updating the store's wine section. The estimated annual after-tax cash flow for this project is $530,000 for the next six years. If the appropriate discount rate for the dell expansion is 9 6% and the appropriate discount rate for the wine section is 929 use the NP to determine which project Singing Fish should choose or the store. Adjust the NPV for unequal lives with the equivalent annual annuity. Does the decision change?Explanation / Answer
1. Discount rate is 9.6%, what is the NPV of the deli expansion?
NPV = -Initial Investment + After tax cash flow*(1-(1+r)^-n)/r
NPV = - 2060000 + 610000*(1-(1+9.6%)^-5)/9.6%
NPV = $ 276,204.61
2. Discount rate is 9.2%, what is the NPV of the wine selection?
NPV = -Initial Investment + After tax cash flow*(1-(1+r)^-n)/r
NPV = - 2060000 + 530000*(1-(1+9.2%)^-6)/9.2%
NPV = $ 303426.31
3. Based on the NPV, Singing Fish Foods should pic ______ project?
Based on the NPV, Singing Fish Foods should pic Wine Section project
4. What is the adjusted NPV equivalant annual annuityof the Deli espansion and Wine Section?
Adjusted NPV equivalant annual annuityof the Deli espansion = NPV(/(1-(1+r)^-n)/r)
Adjusted NPV equivalant annual annuityof the Deli espansion = 276,204.61 / ((1-(1+9.6%)^-5)/9.6%)
Adjusted NPV equivalant annual annuityof the Deli espansion = $ 72,119.03
Adjusted NPV equivalant annual annuityof the Wine Section = NPV(/(1-(1+r)^-n)/r)
Adjusted NPV equivalant annual annuityof the Wine Section = 303426.31 / ((1-(1+9.2%)^-6)/9.2%)
Adjusted NPV equivalant annual annuityof the Wine Section = $ 68043.56
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.