A Company Has a Decision to Make Between Two Investment

question 69

Essay

A company has a decision to make between two investment alternatives.The company requires a 10% return on investment.Predicted data is provided below:
$$\begin{array} { l rr } &\underline{\text { Investment Y}} & \underline{\text { Investment Z}} \\\text {Projected after-tax net income}&\$ 40,000&\$ 42,000\\\text {Investment costs}&\$ 600,000&\$ 675,000\\\text {Estimated life}&6 \text { years }&6 \text { years }\end{array}$$
The present value of an annuity for six years at 10% is 4.3553.This company uses straight-line depreciation.
Required:
a.Calculate the net present value for each investment.
b.Which investment should this company select? Explain.

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Definitions:

Testcross

Cross, between an individual with a dominant phenotype and an individual with a recessive phenotype, to determine whether the dominant individual is homozygous or heterozygous.

Dominant Phenotype

The phenotype or trait that is expressed in an organism's appearance when two different alleles or versions of a gene are present.

Homozygous Recessive

A genetic condition where an individual possesses two identical recessive alleles for a particular trait, resulting in the expression of the recessive phenotype.

Genotypic Ratio

The numerical relationship showing the assortment of genotypes resulting from a genetic cross.