Wisconsin Dairy Co. is currently making its capital budgeting decisions for the upcoming year. Among the projects
Question:
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Wisconsin Dairy Co. is currently making its capital budgeting decisions for the upcoming year. Among the projects they are considering are two machines: Machine W and Machine WW. Machine W costs $500,000 but will produce expected after-tax cash inflows of $300,000 at the end of each of the next 2 years. Machine WW also costs $500,000 but will produce expected after –tax cash inflows of $165,000 at the end of each of the next 3 years. Both projects have a 10% cost of capital.
Assume that these are mutually exclusive projects that can be repeated indefinitely overtime with the same expected cash flows. Which project should the company accept? [8
b.Using the table above, calculate is the crossover rate % [4]
Define NPV Profile
EXPECTED NET CASH FLOWS
Year | Project X | Project Y |
0 | ($10,000) | ($10,000) |
1 | 6,500 | 3,500 |
2 | 3,000 | 3,500 |
3 | 3,000 | 3,500 |
4 | 1,000 | 3,500 |
| | |
Financial Markets And Institutions
ISBN: 978-0132136839
7th Edition
Authors: Frederic S. Mishkin, Stanley G. Eakins