RAVI has recently experienced a surge in demand for one product line. In order to be more productive, RAVI is analyzing two potential expansion projects. Option B is costlier but provides larger cash inflows. Project A and Project B are mutually-exclusive projects. Carlos Ruiz believes that the impact of this decision will extend out to three years. RAVI’s required return on this project is 10 percent. Computations for Option A are provided. Complete the analysis for Option B, which is over $100,000 more costly, and identify the project that should be selected. Show work to get partial credit in situations where you have incorrect final answer.
option A option B
initial invesment $310.000 initial invesment $450.000
year cash inflow year cash inflow
1 $151.790 1 $210.000
2 $151.790 2 $190.000
3 $151.790 3 $180.000
1. In the Executive Summary, based on the information given and your computations, identify the project should be chosen by RAVI. Why? (Hint: Include discussions of time, yield, and dollars)