In: Finance
Cullumber Industries is expanding its product line and its
production capacity. The costs and expected cash flows of the two
independent projects are given in the following table. The firm
uses a discount rate of 14.98 percent for such projects.
Year | Product Line Expansion | Production Capacity Expansion | ||||
0 | -$2,426,500 | -$6,756,300 | ||||
1 | 501,800 | 2,381,500 | ||||
2 | 853,000 | 2,381,500 | ||||
3 | 853,000 | 2,381,500 | ||||
4 | 853,000 | 3,975,200 | ||||
5 | 853,000 | 3,975,200 |
a. What are the NPVs of the two projects?
b. Should both projects be accepted? or either?
or neither? Explain your reasoning.