Grady Enterprises is looking at two project opportunities for a parcel of land that the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of $1,500,000 with cash flows over the next six years of $200,000 (Year one), $250,000 (Year two), $300,000 (Years three through five), and $1,750,000 in Year six, when Grady plans on selling the restaurant. The sports facility has the following cash outflow: initial cost of $2,400,000 with cash flows over the next three years of $400,000 (Years one to three) and $3,000,000 in Year four, when Grady plans on selling the facility. If the appropriate discount rate for the restaurant is 11% and the appropriate discount rate for the sports facility is 13%, using NPV, determine which project Grady should choose for the parcel of land. Adjust the NPV for unequal lives with the equivalent annual annuity. Does the decision change?
Answer to relevant QuestionsSinging Fish Fine Foods has $2,000,000 for capital investments this year and is considering two potential projects for the funds. Project one is updating the deli section of the store for additional food service. The ...Chandler and Joey were having a discussion about which financial model to use for their new business. Chandler supports NPV and Joey supports IRR. The discussion starts to get heated when Ross steps in and states, ...Moulton Industries has two potential projects for the coming year, Project B-12 and Project F-4. The two projects are mutually exclusive. The cash flows are listed below. Draw the NPV profile of each project and determine ...Give an example of an opportunity cost and explain how you would estimate the cost as it applies to a particular project.Richards Tree Farm, Inc. has just purchased a new aerial tree trimmer for $91,000. Calculate the depreciation schedule using the property class category of a single-purpose agricultural and horticultural structure (from ...
Post your question