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Managerial Accounting

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Using NPV with Different Investments (JJH)

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Jumpin' Jackie Services is a struggling company attempting to rekindle interest in its prepackaged food products. Jumpin' Jackie is considering three options to revitalize her production. The options are as follows:

Option 1 Option 2 Option 3
Initial Investment \$20,000.00 \$35,000.00 \$40,000.00
Annual Cash Flow \$2,000.00 \$1,500.00 \$3,000.00

The three options are all machines that will improve one element of Jumpin' Jackie's production. Option 1 would increase packaging speed, option 2 would improve cooking speed and accuracy, and option 3 would do both. If Jumpin' Jackie's hurdle rate is 10% and these cash flows will occur for 10 years, which option should Jumpin' Jackie choose using the Net Present Value calculations?

A

Option 1

B

Option 2

C

Option 3

D

None of the options should be chosen as all of the NPV calculations are negative.