Thompson Manufacturing Must Choose Between Two Types of Furnaces to Install.Model

question 44

Multiple Choice

Thompson Manufacturing must choose between two types of furnaces to install.Model A has a 6-year life,and an NPV of $5,000.Model B has a 5-year life,and an NPV of $4,200.The relevant discount rate is 12%.Which model should be chosen? What's the annual cash flow from that model?

• A) Model B; $1,165
• B) Model B; $840
• C) Model A; $833
• D) Model A; $1,216

Recognize the impact of different investment amounts on the comparison of projects using NPV.

Understand the concept and calculation of the accounting rate of return for investment assessment.

Apply knowledge of various capital budgeting evaluation methods including payback period, net present value (NPV), internal rate of return (IRR), and profitability index.

Calculate and interpret the payback period for capital investments.

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