The Alexis Industries is analyzing two potential inventory expansion projects. Option B is more costly and provides
Question:
The Alexis Industries is analyzing two potential inventory expansion projects. Option B is more costly and provides larger cash inflows. Project A and Project B are mutually-exclusive projects. Inventory decisions are made every three years. Due to a soft economy. Alexis' required return is only 6.0%. Results for Option A are provided. Complete the analysis for Option B and identify the project that should be selected. Show work to get partial credit in situations where you have incorrect final answer.
Option A Initial Investment: $31,00 | |
Year | Cash inflow |
1 | $15,179 |
2 | $15,179 |
3 | $15,179 |
| |
Option B Initial Investment: $31,00 | |
Year | Cash inflow |
1 | $21,000 |
2 | $19,000 |
3 | $18,000 |
| |
1. Payback Method (4 points; Option A = 2.04 years):
2. Discounted Payback (8 points; Option A = 2.25 years):
3. Net Present Value (3 points; Option A = $9,574):
4. Profitability Index (3 points; Option A = 1.31):
Managerial Economics
ISBN: 978-0133020267
7th edition
Authors: Paul Keat, Philip K Young, Steve Erfle