Question

NPV unequal lives.

Singing Fish Fine Foods has ​$1,880,000 for capital investments this year and is considering two potential projects for the funds. Project 1 is updating the​ store's deli section for additional food service. The estimated​ after-tax cash flow of this project is $560,000 per year for the next five years. Project 2 is updating the​ store's wine section. The estimated annual​ after-tax cash flow for this project is $510,000 for the next six years. If the appropriate discount rate for the deli expansion is 9.4​% and the appropriate discount rate for the wine section is 8.8​%, use the NPV to determine which project Singing Fish should choose for the store. Adjust the NPV for unequal lives with the equivalent annual annuity. Does the decision​ change? If the appropriate discount rate for the deli expansion is 9.4​%, what is the NPV of the deli​ expansion? (Round to the nearest​ cent.)

Answer 1