Question: !!!Please show all works and specific explanations for each step!!! ABC Company is considering two independent investments. The projects expected net cash flows are as
!!!Please show all works and specific explanations for each step!!!
ABC Company is considering two independent investments. The projects expected net cash flows are as follows:
| Year | Expected Net Cash Flows | |
| Project A | Project B | |
| 0 | -$1,300 | -$405 |
| 1 | $300 | $135 |
| 2 | $200 | $135 |
| 3 | $100 | $135 |
| 4 | $600 | $135 |
| 5 | $600 | $135 |
| 6 | $850 | $135 |
| 7 | $180 | $135 |
Assume the required rate of return is 10%.
- What is each projects Discounted Payback period? If you use the Discounted Payback period method for capital budgeting analysis, which project would you choose? The target payback period is 4 years. Explain.
- What is each projects PI? If you use the PI method for capital budgeting analysis, which project would you choose? Explain.
- Assuming that the projected future net cash flows for each project (from year 1 through 7) 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%. Explain.
- Find the crossover rate. You are absolutely required to provide the equation.
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