Cullumber Industries is expanding its product line and its production capacity. The costs and expected cash flows of the two independent projects are given in the following table. The firm uses a discount rate of 14.98 percent for such projects.Year Product Line Expansion Production Capacity Expansion0 -$2,426,500 -$6,756,300 1 501,800 2,381,500 2 853,000 2,381,500 3 853,000 2,381,500 4 853,000 3,975,200 5 853,000 3,975,200a. What are the NPVs of the two projects? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.)NPV of product line expansion is $ NPV of production capacity expansion is $ b. Should both projects be accepted? or either? or neither? Explain your reasoning.

PRODUCT LINE EXPANSION given, r =14.98% YEAR (t) CASHFLOW (c) DICOUNTING FACTOR 1+r-t PV…

Answered: Cullumber Industries is expanding its…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 6E: Cash payback method Lily Products Company is considering an investment in one of two new product...

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Cullumber Industries is expanding its product line and its production capacity. The costs and expected cash flows of the two independent projects are given in the following table. The firm uses a discount rate of 14.98 percent for such projects.

Year	Product Line Expansion	Production Capacity Expansion
0	-$2,426,500		-$6,756,300
1	501,800		2,381,500
2	853,000		2,381,500
3	853,000		2,381,500
4	853,000		3,975,200
5	853,000		3,975,200

a. What are the NPVs of the two projects? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.)

NPV of product line expansion is		$
NPV of production capacity expansion is		$

b. Should both projects be accepted? or either? or neither? Explain your reasoning.

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