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Jill Harrington, a manager at Jennings Company, is considering several potential capital investment projects. Data on these

Question:

Jill Harrington, a manager at Jennings Company, is considering several potential capital investment projects. Data on these projects follow:


Jill Harrington, a manager at Jennings Company, is considering several


Required:
1. Compute the payback period for each project and rank order them based on this criterion.
2. Compute the NPV of each project and rank order them based on this criterion.
3. Compute the profitability index of each project and rank order them based on this criterion.
4. If Jennings has limited funds to invest, which ranking should Jillrecommend?

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,...
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Project Z $50,000 25,400 70,000 Project X Initial investment Annual cash inflows PV of cash inflows $40,000 25,000 45,000 Project Y $20,000 10,000 33,000

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Project X Project Y Project Z Initial investment 40000 20000 50...View the full answer


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Ann Wangechi
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NPV stands for \"Net Present Value,\" which is a financial concept used to determine the value of an investment or project. It measures the difference between the present value of cash inflows and the present value of cash outflows over a given period of time, using a specific discount rate. To calculate the NPV of an investment, you need to first estimate the cash inflows and outflows associated with the investment, and then discount them back to their present values using a discount rate. The discount rate represents the cost of capital or the expected rate of return required by investors. The formula for calculating NPV is: NPV = sum of (cash inflows / (1 + discount rate)^t) - sum of (cash outflows / (1 + discount rate)^t) Where: Cash inflows: the expected cash received from the investment Cash outflows: the expected cash paid out for the investment Discount rate: the required rate of return or the cost of capital t: the time period in which the cash flow occurs If the NPV is positive, it means that the investment is expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a good investment. If the NPV is negative, it means that the investment is not expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a bad investment.

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