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24-7Arranging investments: Two investment projects (A and B) were presented to the Board of Directors of Al Faris Trading Company. The investment cost for each is 10,000 $ Dollars . The investment life in Project (A) is 5 years, as for the project (B) He is 4 years old. Project A's cash flows are expected to be equal and at an amount of 3,000 $ Dollars annually, except for the third year, where a loss of 3,000 $ Dollars is expected. As for Project (B), its annual cash flows are: 1,000 $ Dollars, 4,000 $ Dollars, 6,000 $ Dollars , and 8,000 $ Dollars, respectively. Note that the rate of skip per project is 8%. Required: 1. Calculate the net present value of each alternative. 2. Calculate the profitability index for each alternative. 3. How will the two alternatives be ranked according to a. The net present value And b. Profitability index?

24-7Arranging investments: Two investment projects (A and B) were presented to the Board of Directors of Al Faris Trading Company. The investment cost for each is 10,000 $ Dollars . The investment life in Project (A) is 5 years, as for the project (B) He is 4 years old. Project A's cash flows are expected to be equal and at an amount of 3,000 $ Dollars annually, except for the third year, where a loss of 3,000 $ Dollars is expected. As for Project (B), its annual cash flows are: 1,000 $ Dollars, 4,000 $ Dollars, 6,000 $ Dollars , and 8,000 $ Dollars, respectively. Note that the rate of skip per project is 8%. Required: 1. Calculate the net present value of each alternative. 2. Calculate the profitability index for each alternative. 3. How will the two alternatives be ranked according to a. The net present value And b. Profitability index?

Essentials Of Investments
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
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24-7Arranging investments: Two investment projects (A and B) were presented to the Board of Directors of Al Faris Trading Company. The investment cost for each is 10,000 $ Dollars. The investment life in Project (A) is 5 years, as for the project (B) He is 4 years old. Project A's cash flows are expected to be equal and at an amount of 3,000 $ Dollars annually, except for the third year, where a loss of 3,000 $ Dollars is expected. As for Project (B), its annual cash flows are: 1,000 $ Dollars, 4,000 $ Dollars, 6,000 $ Dollars , and 8,000 $ Dollars , respectively. Note that the rate of skip per project is 8%. Required: 1. Calculate the net present value of each alternative. 2. Calculate the profitability index for each alternative. 3. How will the two alternatives be ranked according to a. The net present value And b. Profitability index? 4. What are the difficulties encountered in arranging the two alternatives?
Transcribed Image Text:24-7Arranging investments: Two investment projects (A and B) were presented to the Board of Directors of Al Faris Trading Company. The investment cost for each is 10,000 $ Dollars. The investment life in Project (A) is 5 years, as for the project (B) He is 4 years old. Project A's cash flows are expected to be equal and at an amount of 3,000 $ Dollars annually, except for the third year, where a loss of 3,000 $ Dollars is expected. As for Project (B), its annual cash flows are: 1,000 $ Dollars, 4,000 $ Dollars, 6,000 $ Dollars , and 8,000 $ Dollars , respectively. Note that the rate of skip per project is 8%. Required: 1. Calculate the net present value of each alternative. 2. Calculate the profitability index for each alternative. 3. How will the two alternatives be ranked according to a. The net present value And b. Profitability index? 4. What are the difficulties encountered in arranging the two alternatives?
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