Hartland Industries is evaluating 2 investment projects. Both projects will require an upfront expenditure of $25...

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Hartland Industries is evaluating 2 investment projects. Both projects will require an upfront expenditure of $25 million. The investments will produce the following after-tax cash flows (in millions of dollars). Year 0 1 2 3 4 Project A -$25 $5 $9 $14 $20 Project B -$25 $18 $9 $8 $8 a) What is the regular payback period for Project A if the cost of capital is 10%? If the required payback is 3 years which project(s) would you accept assuming they are mutually exclusive? Payback for ProjectB =1.7778 years. (4 marks) b) What is the discounted payback period for Project A if the cost of capital is 10%? If the required payback is 3 years which project(s) would you accept assuming they are independent? Payback for Discounted Project B=2.1994 years. (4 marks) c) If the projects are mutually exclusive and the cost of capital is 7%, using a NPV analysis, which project(s) should the firm undertake? NPV, 12.3169 (3 marks) d) If the projects are mutually exclusive and the cost of capital is 17%, using a NPV analysis, which project(s) should the firm undertake? NPV = 6.2234 (3 marks) e) Based on the profitability index (PI), what is your recommendation concerning these projects if these projects are independent and the cost of capital is 7%? Plg= 1.4927 (3 marks) Hartland Industries is evaluating 2 investment projects. Both projects will require an upfront expenditure of $25 million. The investments will produce the following after-tax cash flows (in millions of dollars). Year 0 1 2 3 4 Project A -$25 $5 $9 $14 $20 Project B -$25 $18 $9 $8 $8 a) What is the regular payback period for Project A if the cost of capital is 10%? If the required payback is 3 years which project(s) would you accept assuming they are mutually exclusive? Payback for ProjectB =1.7778 years. (4 marks) b) What is the discounted payback period for Project A if the cost of capital is 10%? If the required payback is 3 years which project(s) would you accept assuming they are independent? Payback for Discounted Project B=2.1994 years. (4 marks) c) If the projects are mutually exclusive and the cost of capital is 7%, using a NPV analysis, which project(s) should the firm undertake? NPV, 12.3169 (3 marks) d) If the projects are mutually exclusive and the cost of capital is 17%, using a NPV analysis, which project(s) should the firm undertake? NPV = 6.2234 (3 marks) e) Based on the profitability index (PI), what is your recommendation concerning these projects if these projects are independent and the cost of capital is 7%? Plg= 1.4927 (3 marks)

Answer rating: 100% (QA)

Lets analyze each part of this investment evaluation a Regular Payback Period for Project A at a 10 cost of capital The regular payback period is the time it takes for the initial investment to be rec... View the full answer