1. Calculate the payback period of each project and based on this criteria indicate which project you...

Question:

1. Calculate the payback period of each project and based on this criteria indicate which project you would recommend for acceptance.

2. Calculate the net present value (NPV) of each project and based on this criteria indicate which project you would recommend for acceptance.

3. Calculate the internal rate of return (IRR) of each project and based on this criteria indicate which project you would recommend for acceptance.

4. Calculate the profitability index (PI) of each project and based on this criteria, indicate which project you would recommend for acceptance.

5. Overall, you should find conflicting recommendations based on the various criteria. Why is this occurring?

6. Chart the NPV profiles of these projects. Label the intersection points on the x- and y-axis and the crossover point.

7. Based on this NPV profile analysis and assuming the WACC is 15%, which project would you recommended for acceptance? Why?

8. Based on this NPV profile analysis and assuming the WACC is 25%, which project is recommended? Why?

9. Discuss the important elements to consider when deciding between these two projects.

Contact Manufacturing, Inc., is considering two alternative investment proposals. The first proposal calls for a major renovation of the company€™s manufacturing facility. The second involves replacing just a few obsolete pieces of equipment in the facility. The company will choose one project or the other this year, but it will not do both. The cash flows associated with each project appear below and the firm discounts project cash flows at 15%.

1. Calculate the payback period of each project and based

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...