Locey Hardware Products is expanding its product line and its production capacity. The costs and expected cash flows of the two projects are given below. The firm typically uses a discount rate of 15.4 percent.
a. What are the NPVs of the two projects?
b. Which of the two projects should be accepted (if any) and why?

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Production Product Line Year Capacity Expansion Expansion (8,137,250) $ 1,250,000 $ 2,700,000 S 2,500,000 $ 3,250,000 $ 3,250,000 (2,450,000) $ 500,000 $ 825,000 S 850,000 S 875,000 S 895,000 3 4 2.