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Vanyuwa [196]
3 years ago
10

Ace Inc. is evaluating two mutually exclusive projects—Project A and Project B. The initial investment for each project is $50,0

00. Project A will generate cash inflows equal to $15,625 at the end of each of the next five years; Project B will generate only one cash inflow in the amount of $99,500 at the end of the fifth year (i.e., no cash flows are generated in the first four years). The required rate of return of Ace Inc. is 10 percent. Which project should Ace Inc. purchase?
Business
1 answer:
Alinara [238K]3 years ago
3 0

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

The initial investment for each project is $50,000. Project A will generate cash inflows equal to $15,625 at the end of each of the next five years; Project B will generate only one cash inflow in the amount of $99,500 at the end of the fifth year (i.e., no cash flows are generated in the first four years). The required rate of return of Ace Inc. is 10 percent.

To determine which project to choose we need to use the following formula:

NPV= -Io + ∑[Cf/(1+i)^n]

Cf= cash flow

Project A:

Io= -50,000

Year 1to 5= 15,625

NPV= $9,231.04

Project B:

Io= 50,000

Year 5= 99,500

NPV= -50,000 + 99,500/1.10^5= 11,781.67

The highest NPV is the best option. Therefore, project B is the best.

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Suppose we have a 2-person world, with only Stephen and his friend LeBron. Suppose that Stephen can move 70 boxes or bake 28 coo
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Answer:

Option (c) is correct.

Explanation:

Stephen can move 70 boxes or bake 28 cookies:

Opportunity cost of moving a box = (28 ÷ 70)

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Opportunity cost of baking a cookie = (70 ÷ 28)

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LeBron could move 24 boxes or bake 6 cookies:

Opportunity cost of moving a box = (6 ÷ 24)

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Opportunity cost of baking a cookie = (24 ÷ 6)

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Yes, trade is possible.

Stephen has a comparative advantage in baking cookies because of the lower opportunity cost than LeBron, so he is specialized in baking cookies.

On the other hand, LeBron has a comparative advantage in moving boxes because of the lower opportunity cost than Stephen, so he is specialized in moving boxes.

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