The Canary Company is looking to invest in a new project. They have narrowed it down to
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Question:
The Canary Company is looking to invest in a new project. They have narrowed it down to two potential projects - A and B. The data on investment and cash flows for each project is outlined below:
Project Initial Investment Year One Year Two Year Three Year Four
Project A $450,000 $200,000 $225,000 $275,000 $200,000
Project B $500,000 $150,000 $200,000 $300,000 $250,000
The appropriate discount rate for each project is 16%. With this information, determine the following information:
• NPV of cash flows for each project
• Profitability index for each project
Required:
Based on your calculations, which project do you select and why?
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