Your company is considering funding two projects. Project A will cost the company $720,000, and Project...
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Your company is considering funding two projects. Project A will cost the company $720,000, and Project B will cost $600,000. For Project A, they expect an estimated cash flow of $125,000 per year. For Project B, they expect an estimated cash flow of $180,000 per year. Senior Management has stated that the project that has been chosen must yield a 20% rate of return. The project life cannot exceed five years. The inflation rate is expected to be 2% 5. (2 points) Compute the profitability index for each project 6. (2 points) What project would you select based on the latest information and why? 7. (5 points) For Project A and Project B, what would have to be the minimum discount rate to ensure our company would not lose any money based on the requirements set by senior leadership? (You can use Excel for this problem) Your company is considering funding two projects. Project A will cost the company $720,000, and Project B will cost $600,000. For Project A, they expect an estimated cash flow of $125,000 per year. For Project B, they expect an estimated cash flow of $180,000 per year. Senior Management has stated that the project that has been chosen must yield a 20% rate of return. The project life cannot exceed five years. The inflation rate is expected to be 2% 5. (2 points) Compute the profitability index for each project 6. (2 points) What project would you select based on the latest information and why? 7. (5 points) For Project A and Project B, what would have to be the minimum discount rate to ensure our company would not lose any money based on the requirements set by senior leadership? (You can use Excel for this problem)
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Related Book For
South Western Federal Taxation 2015 Essentials of Taxation Individuals and Business Entities
ISBN: 9781285438290
18th edition
Authors: James Smith, William Raabe, David Maloney, James Young
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