Question: You are the CFO ofTotalEnvironmentSolutions Ltd(TES), which needs to make a capital budgeting decision to choose oneoftwo (2) mutually exclusive projects(Project I, Project II)with thefuturecash

  1. You are the CFO ofTotalEnvironmentSolutions Ltd(TES), which needs to make a capital budgeting decision to choose oneoftwo (2) mutually exclusive projects(Project I, Project II)with thefuturecash flowspresented in the table below:

Project I

Project II

Cost

$650 000

$740 000

Future CashFlows

Year 1

Year 2

Year 3

Year 4

280 000

290000

270000

260 000

330 000

350 000

290 000

290 000

Required:

Performtheproject evaluationand identifywhich projectthe company should choose usingthe followingmethods:

  1. TheProfitability Indexmethod with the discount rate of 12% (5 marks)

ANSWER:

  1. ThePayback Period (PBP)method withabenchmark of maximum 2.5years (4 marks)

ANSWER:

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