Dorati Inc. is considering two mutually exclusive projects. Dorati used a 15% required rate of return to
Question:
Dorati Inc. is considering two mutually exclusive projects. Dorati used a 15% required rate of return to evaluate capital expenditure projects. Assuming the two projects have the costs and cash flows shown below, determine the NPV for each using a replacement chain.
Year Project S Project T
0 –$70,000 –$100,000
1 $50,000 $ 60,000
2 $60,000 $ 70,000
3 - $ 80,000
4 - $ 90,000
Assume in two years Project S will still cost $70,000 and produce the same two years of cash flows.
a. NPVs = $14,690: NPVT = $109,240
b. NPVs = $8,860: NPVT = $109,240
c. None of these are correct
d. NPVs = $40,020: NPVT = $109,240
Foundations of Finance The Logic and Practice of Financial Management
ISBN: 978-0132994873
8th edition
Authors: Arthur J. Keown, John D. Martin, J. William Petty