Your firm has estimated the following cash flows for two mutually exclusive capital investment projects. The...
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Your firm has estimated the following cash flows for two mutually exclusive capital investment projects. The firm's required rate of return is 10%. The firm uses 3 years as the cutoff for payback period method. Year Project A Cash Flow Project B Cash Flow 0 1 2 3 4 5 6 -$185,000 55,000 55,000 55,000 45,000 45,000 45,000 1. What is the Payback Period of Projects A and B? 2. Which project would you accept on the basis of payback period? 3. What is the NPV of projects A and B? 4. Which project would you accept on the basis of NPV? 5. What is the PI of projects A and B? 6. Which project would you accept on the basis of PI? 7. What is the IRR of projects A and B? 8. Which project would you accept on the basis of IRR? 9. Is there a conflict between the methods? -$410,000 120,000 120,000 110,000 110,000 90,000 60,000 10. Which project(s) would you accept and why? 11. What would be your answer to 10 above if the projects were independent? Your firm has estimated the following cash flows for two mutually exclusive capital investment projects. The firm's required rate of return is 10%. The firm uses 3 years as the cutoff for payback period method. Year Project A Cash Flow Project B Cash Flow 0 1 2 3 4 5 6 -$185,000 55,000 55,000 55,000 45,000 45,000 45,000 1. What is the Payback Period of Projects A and B? 2. Which project would you accept on the basis of payback period? 3. What is the NPV of projects A and B? 4. Which project would you accept on the basis of NPV? 5. What is the PI of projects A and B? 6. Which project would you accept on the basis of PI? 7. What is the IRR of projects A and B? 8. Which project would you accept on the basis of IRR? 9. Is there a conflict between the methods? -$410,000 120,000 120,000 110,000 110,000 90,000 60,000 10. Which project(s) would you accept and why? 11. What would be your answer to 10 above if the projects were independent?
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Answer rating: 100% (QA)
Lets go through each question step by step 1 Payback Period To calculate the payback period we need to keep adding the cash flows until the initial investment is recovered For Project A Year 1 55000 Y... View the full answer
Related Book For
Financial Management Theory and Practice
ISBN: 978-1305632295
15th edition
Authors: Eugene F. Brigham, Michael C. Ehrhardt
Posted Date:
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