The finance director of your company submits the following two investment projects to you: Project A =
Question:
The finance director of your company submits the following two investment projects to you:
Project A = Investment initial : $50,000 Monetary flux annual : $12,000 Duration : 5 years
Project B = Investment initial : $20,000 Monetary flux annual : $8,000 Duration : 5 years
Projects A and B are independent and only one can be undertaken. The required rate of return, taking into account the risk of these projects, is 11% per year. Cash flows are paid out at the end of each year.
The director asks you which project to choose according to each of the following decision criteria (present your calculations)
1) the net present value (NPV),
2) the recovery time (DR),
3) the profitability index (IR),
4) the equivalent annual income (RAÉ),
5) the internal rate of return (IRR).
Financial Accounting and Reporting
ISBN: 978-0273744443
14th Edition
Authors: Barry Elliott, Jamie Elliott