Compute the net present value of each project. Which project should Advo adopt based on the net… 2 answers below »
The CFO of Advo Corporation is considering two investment opportunities. The expected future cash inflows for each opportunity follow.
Year 1
Year 2
Year 3
Year 4
Project 1
$144,000
$147,000
$160,000
$178,000
Project 2
204,000
199,000
114,000
112,000
Both investments require an initial payment of $400,000. Advo’s desired rate of return is 16 percent.
Required
a. Compute the net present value of each project. Which project should Advo adopt based on the net present value approach?
b. Based on the payback approach (incremental revenue summation method) which project should Advo adopt?
