Maxim, Inc

Maxim, Inc., is considering two mutually exclusive projects. Project 1 requires an investment of £40,000, while Project 2 requires an investment of £30,000. Cash revenues and cash costs for each project are shown below.
The company estimates that at the end of the fourth year Project 1 would have a salvage value of £3,000 and Project 2 would have a salvage value of £1,000.
Required:

a.
Determine the net present value of EACH project using a 16 percent discount rate.
b.
Prepare a memorandum for management stating your recommendation. Include supporting calculations in good form.

Correct Answer:

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