ABC Company is considering two independent investments.The expected net cash flows of the projects are as follows:
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ABC Company is considering two independent investments. The expected net cash flows of the projects are as follows:
Year | Expected Net Cash Flows | |
Project A | Project B | |
0 | -1.300$ | -405 dollars |
1 | $ 300 | $135 |
2 | $200 dollars | $135 |
3 | 100 dollars | $135 |
4 | 600 dollars | $135 |
5 | 600 dollars | $135 |
6 | 850 dollars | $135 |
7 | 180 dollars | $135 |
Suppose the required rate of return is 10%.
- What is the Discounted Payback period for each project? If you use the Discounted Payback period method for capital budgeting analysis, which project would you choose? The target payback period is 4 years. To explain.
- What is the PI of each project? If you use the PI method for capital budgeting analysis, which project would you choose? To explain.
- Assuming that the projected future net cash flows (from year 1 to year 7) for each project are net income, find the AAR? If you use the AAR method for capital budgeting analysis, which project would you choose? The target AAR is 65%. To explain.
- Find the pass rate. You must provide the equation.
Related Book For
Financial management theory and practice
ISBN: 978-0324422696
12th Edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt
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