Inatech Is Contemplating Two Different Projects and Decides to Perform

question 3

Essay

Inatech is contemplating two different projects and decides to perform a financial analysis to determine which is more financially lucrative.Project A and B have the cash flows as shown and Inatech uses a required rate of return of 10% and an inflation rate of 4%.Compute the payback in years and the net present value for both projects and offer advice as to the best course of action. $$\begin{array} { | l | l | l | } \hline \text { Year } & \mathbf { A } & \mathbf { B } \\\hline 0 & - \$ 250,000 & - \$ 400,000 \\\hline 1 & \$ 75,000 & \$ 125,000 \\\hline 2 & \$ 155,000 & \$ 230,000 \\\hline 3 & \$ 200,000 & \$ 288,000 \\\hline 4 & \$ 175,000 & \$ 265,000 \\\hline 5 & \$ 160,000 & \$ 225,000 \\\hline\end{array}$$

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Definitions:

Marginal Cost

The expense incurred from manufacturing an extra unit of a good or service.

Profit Increase

The rise in the difference between a company's revenue and its expenses.

Long Run

A period in which all factors of production and costs are variable, allowing firms to adjust to market changes fully.

Marginal Cost

The expense associated with manufacturing an extra single unit of a product or service.