United Green Co

Subject:BusinessPrice: Bought3

Share With

United Green Co. is considering investing $2,500,000 in one of these two separated opportunities: • Asset (A) which estimated to generate $800,000 net cash inflows each year of its four-years life. With no residual value. • Asset (B) which expected to generate the following net cash inflows during its 3 years useful life: $600,000 in Year 1, $1,000,000 in Year 2, $1,500,000 in year 3. With $100,000 residual value. Assume the company's desired rate is 12%. Requirement: Use the following capital budget methods to decide which asset should United Green Co. invest in: 1- Payback 2- Net Present Value (NPV) WN *Present value of annuity of $1: 12% 13% 14% 15% 1 0.893 0.885 0.877 0.879 2 1.695 1.668 1.647 1.626 3 2.402 2.361 2.322 2.283 4 3.037 2.974 2.914 2.855 5 3.605 3.517 3.433 3.352 Nm 1 2 3 4 5 *Present value of $1: 12% 13% 14% 0.893 0.885 0.877 0.797 0.783 0.769 0.712 0.693 0.675 0.636 0.613 0.592 0.567 0.543 0.519 15% 0.879 0.756 0.658 0.572 0.497 5 1 Payback Asset A Asset B N 2 NPV Asset ? Asset B B