Joe’s Technology must choose between two repeatable methods of producing a new product. The initial costs and year-end cash benefits are as follows:
Year 0 1 2 3 4 5
Method M -$1,500,000 800,000 950,000 550,000 200,000
Method N -$2,500,000 1,200,000 950,000 700,000 400,000 300,000
Assume all cash flows occur at year-end and the company’s required return is 9.57 percent.
Compute the net present value ______________ and the equivalent annuity ________________ for Method M
Compute the net present value ______________ and the equivalent annuity ________________ for Method N
Which production method should be used? _______________
