Question: I need a detailed step by step answer, done manually, not by excel. TIA Suppose you have recently joined S.E Food Company, Inc., and your
I need a detailed step by step answer, done manually, not by excel. TIA
Suppose you have recently joined S.E Food Company, Inc., and your manager has asked you to help him evaluate the following mutually exclusive projects. The companys board of directors has set a maximum 4-year payback requirement and has set its cost of capital at 10%. The cash inflows associated with the three projects are shown in the following table.
| YEAR | CASH FLOWS | ||
| A | B | C | |
| 0 | (100,000) | (120,000) | (90,000) |
| 1 | $35,000 | $25,000 | $15,000 |
| 2 | $55,000 | $30,000 | $20,000 |
| 3 | $45,000 | $50,000 | $50,000 |
| 4 | $25,000 | $60,000 | $60,000 |
| 5 | $15,000 | $70,000 | $50,000 |
a) Calculate NPV, Profitability Index and Pay back of these projects.
b) Your calculation indicates that project As initial investment would be recovered quicker than any other projects, therefore you believe A is the best alternative. However, your boss is strongly against investing in A. The top management also supports your boss. Identify and explain some of the factors which might have led your boss and the top management to think otherwise.
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