5). The HC Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow I (in dollars) Cash Flow II (in dollars) 0 -64, 000 -18,000 1 31, 000 9,700 2 31, 000 9,700 3 31, 000 9,700 a). If the required return is 10%, and the company applies the profitability index decision rule, which project should the firm accept? Why? b). If the company applies the NPV decision rule, which project should it take? Why? c). Explain why your answers in (a) and (b) are different.
5). The HC Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow I (in dollars) Cash Flow II (in dollars) 0 -64, 000 -18,000 1 31, 000 9,700 2 31, 000 9,700 3 31, 000 9,700 a). If the required return is 10%, and the company applies the profitability index decision rule, which project should the firm accept? Why? b). If the company applies the NPV decision rule, which project should it take? Why? c). Explain why your answers in (a) and (b) are different.
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
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5). The HC Corporation is trying to choose between the following two mutually exclusive design projects:
|
Year |
Cash Flow I (in dollars) |
Cash Flow II (in dollars) |
|
0 |
-64, 000 |
-18,000 |
|
1 |
31, 000 |
9,700 |
|
2 |
31, 000 |
9,700 |
|
3 |
31, 000 |
9,700 |
a). If the required return is 10%, and the company applies the profitability index decision rule, which project should the firm accept? Why?
b). If the company applies the
c). Explain why your answers in (a) and (b) are different.
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