1. E12-27A Calculate NPV-equal annual cash inflows
Use the NPV method to determine whether Olde West Products should invest in the following projects:
• Project A costs $290,000 and offers seven annual net cash inflows of $63,000. Olde West Products requires an annual return of 14% on projects like A.
• Project B costs $395,000 and offers ten annual net cash inflows of $71,000. Olde West Products demands an annual return of 10% on investments of this nature.
Requirement
What is the NPV of each project? What is the maximum acceptable price to pay for each project?
2. E12-28A Calculate IRR-equal cash inflows
Refer to Olde West Products in E12-27A. Compute the IRR of each project and use this information to identify the better investment.