Rowan Company is considering two alternative investment projects. Each requires a $251,000 initial investment. Project A...
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Rowan Company is considering two alternative investment projects. Each requires a $251,000 initial investment. Project A is expected to generate net cash flows of $61,000 per year over the next six years. Project B is expected to generate net cash flows of $51,000 per year over the next seven years. Management requires an 7% rate of return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Compute each project's net present value. 2. Compute each project's profitability index. 3. If the company can choose only one project, which should it choose, based on profitability index? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute each project's net present value. (Do not round intermediate calculations. Round your present value factor to 4 decimals and your final answers to the nearest whole dollar.) Project A Years 1-6 Net present value Present Value Net Cash Flows X Present Value of Annuity at 7% = of Net Cash Flows Present Value Project B Net Cash Flows Present Value of X = of Net Cash Annuity at 7% Rowan Company is considering two alternative investment projects. Each requires a $251,000 initial investment. Project A is expected to generate net cash flows of $61,000 per year over the next six years. Project B is expected to generate net cash flows of $51,000 per year over the next seven years. Management requires an 7% rate of return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Compute each project's net present value. 2. Compute each project's profitability index. 3. If the company can choose only one project, which should it choose, based on profitability index? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute each project's net present value. (Do not round intermediate calculations. Round your present value factor to 4 decimals and your final answers to the nearest whole dollar.) Project A Years 1-6 Net present value Present Value Net Cash Flows X Present Value of Annuity at 7% = of Net Cash Flows Present Value Project B Net Cash Flows Present Value of X = of Net Cash Annuity at 7%
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To compute the net present value NPV of each project we need to discount the future cash flows to ... View the full answer
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