The Acme Blivet Company is evaluating three investment situations: (1) produce a newline of aluminum blivets, (2) expand its existing blivet line to include several new sizes,and (3) develop a new,...

The Acme Blivet Company is evaluating three investment situations: (1) produce a newline of aluminum blivets, (2) expand its existing blivet line to include several new sizes,and (3) develop a new, higher-quality line of blivet. If only the project in question isundertaken, the expected present values and the amounts of investment required are asfollows:INVESTMENTPRESENT VALUE OFPROJECTREQUIREDFUTURE CASH FLOWS1$200,000$290,0002115,000185,0003270,000400,000If projects 1 and 2 are jointly undertaken, there will be no economies; the investmentrequired and present values will simply be the sum of the parts. With projects 1 and 3,economies are possible in investment because one of the machines acquired can be used inboth production processes. The total investment required for projects 1 and 3 combined is$440,000. If projects 2 and 3 are undertaken, there are economies to be achieved in mar?keting and producing the products but not in investment. The expected present value offuture cash flows for projects 2 and 3 combined is $620,000. If all three projects are under?taken simultaneously, the economies noted above will still hold. However, a $125,000extension on the plant will be necessary, as space is not available for all three projects.Which project or projects should be chosen?Part 5 Investment in Capital Assets346••