Net present value a mutually exclusive projects. Assume Nugget Co. must choose between two mutually exclusive innovations for improving its computer system- one offered by AMD and the other by NEC. Nugget's after-tax cost of capital is 12%. AMD's system cost $1 million and promises after-tax cash flow in personnel cost savings for four years; $400,000 at end of year one and Year 2, $300,000 at the endo of Year 3; and $200,000 at the end of Year 4 NEC's system cost $1.5million and promises after-tax cash flows for three years: $800,000 at the end of Year 1, $600,000 at the end of Year 2, and $500,000 at the end of Year 3 Answer the following and show breakdown/work: a. Compute the net present values of each of the alternatives b. Which alternative, if either, should Nugget choose and why?
Net present value a mutually exclusive projects. Assume Nugget Co. must choose between two mutually exclusive innovations for improving its computer system- one offered by AMD and the other by NEC. Nugget's after-tax cost of capital is 12%. AMD's system cost $1 million and promises after-tax cash flow in personnel cost savings for four years; $400,000 at end of year one and Year 2, $300,000 at the endo of Year 3; and $200,000 at the end of Year 4 NEC's system cost $1.5million and promises after-tax cash flows for three years: $800,000 at the end of Year 1, $600,000 at the end of Year 2, and $500,000 at the end of Year 3 Answer the following and show breakdown/work: a. Compute the net present values of each of the alternatives b. Which alternative, if either, should Nugget choose and why?
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter12: Capital Investment Decisions
Section: Chapter Questions
Problem 49P: Cost of Capital, Net Present Value Leakam Companys product engineering department has developed a...
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AMD's system cost $1 million and promises after-tax cash flow in personnel cost savings for four years; $400,000 at end of year one and Year 2, $300,000 at the endo of Year 3; and $200,000 at the end of Year 4
NEC's system cost $1.5million and promises after-tax cash flows for three years: $800,000 at the end of Year 1, $600,000 at the end of Year 2, and $500,000 at the end of Year 3
Answer the following and show breakdown/work:
a. Compute the net present values of each of the alternatives
b. Which alternative, if either, should Nugget choose and why?
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