A Company Has a Decision to Make Between Two Investment

question 42

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:
$\begin{array}{lrr}&\text { Investment Y }&\text { Investment Z }\\\text { Projected after-tax net income } & \$ 40,000 & \$ 42,000 \\\text { Investment costs } & \$ 600,000 & \$ 675,000 \\\text { Estimated life } & 6 \text { years } & 6 \text { years }\end{array}$
The present value of an annuity for 6 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:

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