20. Bottle plc manufactures eco-friendly drinking bottles. The company is considering various investment projects that should help improve their products. They have shortlisted three projects and asked you to recommend the best option. They provided you with the following information about the projects: • Project I will last for 3 years. The initial outlay is £400,000 and the expected cash flow originating from the project is £200,000 for the first 2 years of the project and £60,000 in the last year of the project life. • Project Il will last for 3 years. The initial outlay is £350,000 and the expected cash flow originating from the project is £180,000 for the first 2 years of the project and £200,000 in the last year of the project life. • Project III will last for 4 years. The initial outlay is £380,000 and the expected cash flow originating from the project is £150,000 in the first 2 years and then increase by £60,000 in year 3 and stay at that level until the end of the project life. Current cost of capital is 20%. Required (a) Evaluate each of the three projects using Payback Period. Evaluate each of the three projects using Net Present Value.
20. Bottle plc manufactures eco-friendly drinking bottles. The company is considering various investment projects that should help improve their products. They have shortlisted three projects and asked you to recommend the best option. They provided you with the following information about the projects: • Project I will last for 3 years. The initial outlay is £400,000 and the expected cash flow originating from the project is £200,000 for the first 2 years of the project and £60,000 in the last year of the project life. • Project Il will last for 3 years. The initial outlay is £350,000 and the expected cash flow originating from the project is £180,000 for the first 2 years of the project and £200,000 in the last year of the project life. • Project III will last for 4 years. The initial outlay is £380,000 and the expected cash flow originating from the project is £150,000 in the first 2 years and then increase by £60,000 in year 3 and stay at that level until the end of the project life. Current cost of capital is 20%. Required (a) Evaluate each of the three projects using Payback Period. Evaluate each of the three projects using Net Present Value.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Payback period, NPV calculations, show workings
Transcribed Image Text:20. Bottle plc manufactures eco-friendly drinking bottles. The company is considering
various investment projects that should help improve their products. They have
shortlisted three projects and asked you to recommend the best option.
They provided you with the following information about the projects:
• Project I will last for 3 years. The initial outlay is £400,000 and the expected cash
flow originating from the project is £200,000 for the first 2 years of the project and
£60,000 in the last year of the project life.
• Project Il will last for 3 years. The initial outlay is £350,000 and the expected cash
flow originating from the project is £180,000 for the first 2 years of the project and
£200,000 in the last year of the project life.
• Project III will last for 4 years. The initial outlay is £380,000 and the expected cash
flow originating from the project is £150,000 in the first 2 years and then increase by
£60,000 in year 3 and stay at that level until the end of the project life.
Current cost of capital is 20%.
Required
(a) Evaluate each of the three projects using Payback Period.
Evaluate each of the three projects using Net Present Value.
Explain which projects should be accepted and why.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 5 steps with 9 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education