Adequate information:
Cost of investment of headache-only pills = $28,000,000
Economic life of headache-only pills = 3 years
Number of packages produce for headache-only pills = 3,200,000
Price per package of headache-only pills = $8.25
Production cost per package of headache-only pills = $3.60
Market value of headache and arthritis pills project = $1,000,000
Cost of investment of headache and arthritis pills project = $36,000,000
Economic life of headache and arthritis pills project = 3 years
Number of packages produce for headache and arthritis pills project = 3,200,000
Price per package of headache and arthritis pills project = $8.25
Production cost per package of headache and arthritis pills project = $4.55
Inflation rate = 3% or 0.03
Tax rate = 22% or 0.22
Appropriate real discount rate = 5% or 0.05
To determine: The product that should be chosen by the company.
Introduction: The term
The decision criteria of net present value are that in the case of the mutually exclusive project, the project having the higher net present value should be selected.
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