Refer to Vargas Products in E12-46B. Compute the IRR of each project and use this information to
Question:
In E12-46B. Use the NPV method to determine whether Vargas Products should invest in the following projects:
• Project A costs $285,000 and offers eight annual net cash inflows of $64,000. Vargas Products requires an annual return of 12% on projects such as this.
• Project B costs $390,000 and offers 10 annual net cash inflows of $74,000. Vargas Products demands an annual return of 10% on investments of this nature.
Requirement
What is the NPV of each project? What is the maximum acceptable price to pay for each project?
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Step by Step Answer:
When the investment yields equal net cash inflows the IRR is found by first findi...View the full answer
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