Maxim, Inc

question 8

Essay

Maxim, Inc., is considering two mutually exclusive projects. Project 1 requires an investment of £40,000, while Project 2 requires an investment of £30,000. Cash revenues and cash costs for each project are shown below.
The company estimates that at the end of the fourth year Project 1 would have a salvage value of £3,000 and Project 2 would have a salvage value of £1,000.
Required:

a.
Determine the net present value of EACH project using a 16 percent discount rate.
b.
Prepare a memorandum for management stating your recommendation. Include supporting calculations in good form.

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Definitions:

Import Quota

A government-imposed limit on the amount or value of goods that can be imported into a country.

International Bartering

The exchange of goods or services between parties from different countries without using money.

Countertrade

A form of international trade in which goods or services are exchanged for other goods or services, rather than for cash.

Less-Developed Country

A country characterized by low levels of industrialization, socioeconomic development, and often a low standard of living among its population.