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.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 13P
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Question
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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