Hi,
Below question is from Oliver Lehmann,
Kindly I need support how to calculate it.
A company has to make a choice between two projects, because the available resources in money and kind are not suffihow cient to run both at the same time. Each project would take 9 months and would cost $250,000.1.The first project is a process optimization which would result in a cost reduction of $120,000 per year. This benefit would be achieved immediately after the end of the project.
2.The second project would be the development of a new product which could produce the following net profits after the end of the project:
1. year: $ 15,000
2. year: $ 125,000
3. year: $ 220,000
Assumed is a discount rate of 5% per year. Looking at the present values of the benefits of these projects in the first 3 years, what is true?
Both projects are equally attractive.
The first project is more attractive by app. 7%.
The second project is more attractive by app. 5%.
The first project is more attractive by app. 3%
BR//
Twana
