project a could be modified by spending 20 000 more initially the net annual cash fl 591859

Vasquez Corporation is considering investing in two different projects. It could invest in both, neither, or just one of the projects. The forecasts for the projects are as follows.

	Project A	Project B
Capital investment	$200,000	$300,000
Net annual cash flows	$50,000	$65,000
Length of project	5 years	7 years

The minimum rate of return acceptable to Vasquez is 10%.

Instructions

(a) Compute the net present value of the two projects.

(b) What capital budgeting decision should Vasquez make?

(c) Project A could be modified. By spending $20,000 more initially, the net annual cash flows could be increased by $10,000 per year. Would this change Vasquez’s decision?