Answer to Question #68145 in Accounting for Dai
Production process B also requires an initial investment of $25000 will also last 4 years and it's expected salvage value is zero but process B will increase net cash flow by $15247 per year
MANAGEMENT believe that risk= adjusted discount rate of 12 percentage should be used for process A
If California Mining is to be indifferent (same NPV for Process A and B) between the two process what risk adjusted discount rate must be used to evaluate B ?
Inputs: CF0 = -25000; CF1 = 13000; CF2 = 18000; I = 12.
Output: NPVA = 17663.13.
For process B:
Inputs: CF0 = -42663.13 (-25000-17663.13); CF1 = 15247; Nj = 4.
Output: IRR = 16% = r.
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