A firm is evaluating its two independent projects, L (22) and W(34) for this year’s capital budgeting . The firm’s cost of capital or the required rate of return is 14%. The net incremental cash flows after tax for both the projects are as follows: Outflows Inflows Projects Year 1 2 3 4 5 L (22) -6,000 2,000 2,000 2,000 2,000 4,000 W (34) -18,000 5,600 5,600 5,600 5,600 6,600 Required: Calculate for each project: Payback Period IRR NPV PI Give your decision regarding acceptation and rejection of the project and explain your basis for the decision.
A firm is evaluating its two independent projects, L (22) and W(34) for this year’s capital budgeting . The firm’s cost of capital or the required rate of return is 14%. The net incremental cash flows after tax for both the projects are as follows: Outflows Inflows Projects Year 1 2 3 4 5 L (22) -6,000 2,000 2,000 2,000 2,000 4,000 W (34) -18,000 5,600 5,600 5,600 5,600 6,600 Required: Calculate for each project: Payback Period IRR NPV PI Give your decision regarding acceptation and rejection of the project and explain your basis for the decision.
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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A firm is evaluating its two independent projects, L (22) and W(34) for this year’s capital budgeting . The firm’s cost of capital or the required
|
|
Outflows |
Inflows |
||||
|
Projects |
Year |
1 |
2 |
3 |
4 |
5 |
|
L (22) |
-6,000 |
2,000 |
2,000 |
2,000 |
2,000 |
4,000 |
|
W (34) |
-18,000 |
5,600 |
5,600 |
5,600 |
5,600 |
6,600 |
Required: Calculate for each project:
- Payback Period
- IRR
- NPV
- PI
- Give your decision regarding acceptation and rejection of the project and explain your basis for the decision.
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