The management of Scarborough Corporation has four projects to consider: Project Number 1 2 3 4 Investment
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Question:
The management of Scarborough Corporation has four projects to consider:
Project Number
1 2 3 4
Investment required: $480,000 $360,000 $270,000 $450,000
PV of cash inflows @10% 567,270 433,400 336,140 522,970
Net Present Value $ 87,270 $ 73,400 $ 66,140 $ 72,970
Life of the project 6 years 2 years 6 years 3 years
Internal rate of return 16% 14% 18% 19%
The company has a required rate of return of 10%, and has used this rate in deter-mining the above present values – as the company has a limited budget, and cannot undertake all of the projects at the present time, you have been hired to advise the company on how to proceed.
- Determine the project Profitability Index [PI] for each project
- Rank the projects on the following bases:
- Net present values
- Project profitability index
- IRR
- Provide a brief discussion with the management of the company on how they may use the information you have provided?
Related Book For
Managerial Accounting
ISBN: 978-0697789938
13th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
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