Batelco Inc. is considering two mutually exclusive projects A and B. Each project requires an initial...
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Batelco Inc. is considering two mutually exclusive projects A and B. Each project requires an initial investment as presented in the below table. The economic life of the project A will be 5-Year's and Project B will be 6 years, and both projects carry same risk. Batelco Inc uses a discount rate of 12%. After considering the current economic situation Batelco Inc. has set a maximum payback period of 4 years and minimum return on investment (ROI) 18%. A financial analyst, prepared estimates of the annual revenues and costs associated with each project as in the below table: The working capital will be released 5th and 6t Cost of equipment Working Capital needed Overhaul of the equipment in two years Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs Life of Project Projects A 240,000 60,000 12000 375,000 180,000 48,000 90,000 5 year Projects B 470,000 80,000 14000 Required: 1. Calculate the net present value for each project. (4 Marks) 2. Calculate the simple rate of return for each product. (4 Marks) 3. Which of the two projects (if either) would you recommend that Batelco Inc. accept? Why? (2 Mark) Present value tables are given below to determine the appropriate discount factor(s) using the tables provided. 300,000 90,000 78,333 70,000 16th year of the project A and project B respectively, for investment elsewhere within the company. 6 years Batelco Inc. is considering two mutually exclusive projects A and B. Each project requires an initial investment as presented in the below table. The economic life of the project A will be 5-Year's and Project B will be 6 years, and both projects carry same risk. Batelco Inc uses a discount rate of 12%. After considering the current economic situation Batelco Inc. has set a maximum payback period of 4 years and minimum return on investment (ROI) 18%. A financial analyst, prepared estimates of the annual revenues and costs associated with each project as in the below table: The working capital will be released 5th and 6t Cost of equipment Working Capital needed Overhaul of the equipment in two years Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs Life of Project Projects A 240,000 60,000 12000 375,000 180,000 48,000 90,000 5 year Projects B 470,000 80,000 14000 Required: 1. Calculate the net present value for each project. (4 Marks) 2. Calculate the simple rate of return for each product. (4 Marks) 3. Which of the two projects (if either) would you recommend that Batelco Inc. accept? Why? (2 Mark) Present value tables are given below to determine the appropriate discount factor(s) using the tables provided. 300,000 90,000 78,333 70,000 16th year of the project A and project B respectively, for investment elsewhere within the company. 6 years
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1Calculate the net present value for each project Project A Initial Investment 240000 Annual Revenues 375000 Variable Expenses 180000 Depreciation Expense 48000 Fixed Operating Costs 90000 Working Cap... View the full answer
Related Book For
Financial management theory and practice
ISBN: 978-0324422696
12th Edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt
Posted Date:
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