TCM is considering two mutually exclusive projects. TCM has a 7% cost of capital and follows...

 

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TCM is considering two mutually exclusive projects. TCM has a 7% cost of capital and follows the straight-line method of depreciation. TCM average rate of tax is 25%. The following is the estimated earnings after tax shown below: Initial investment ($) Year 1 2 3 4 5 6 Project A 650,000 120,000 170,000 220,000 250,000 270,000 90,000 Project B 440,000 Earnings after tax ($) 200,000 170,000 150,000 50,000 30,000 30,000 I a. Calculate the Net Present Value, Payback period and Profitability Index of each project. b. Rank and assess acceptance of each project based on your findings in a. TCM is considering two mutually exclusive projects. TCM has a 7% cost of capital and follows the straight-line method of depreciation. TCM average rate of tax is 25%. The following is the estimated earnings after tax shown below: Initial investment ($) Year 1 2 3 4 5 6 Project A 650,000 120,000 170,000 220,000 250,000 270,000 90,000 Project B 440,000 Earnings after tax ($) 200,000 170,000 150,000 50,000 30,000 30,000 I a. Calculate the Net Present Value, Payback period and Profitability Index of each project. b. Rank and assess acceptance of each project based on your findings in a.

Answer rating: 100% (QA)

To calculate the Net Present Value NPV Payback Period and Profitability Index PI for each project we need to consider the cash flows and the cost of c... View the full answer