A Ltd can invest in three out of the following four projects. The company’s cost of capital is 8%. The following is the details of the four projects:- Project 1: Investment is $66 000; Life of project is 3 years; Annual receipts is $31 000 per year Project 2: Investment is $72 000; Life of project is 6 years; Annual receipts is $20 000 per year Project 3: Investment is $60 000; Life of project is 8 years; Annual receipts is $16 000 per year Project 4: Investment is $43 000; Life of project is 4 years; Annual receipts is $17 000 per year Required: Based on the information above, which project should be rejected? Show calculations and provide explanations.
A Ltd can invest in three out of the following four projects. The company’s cost of capital is 8%. The following is the details of the four projects:- Project 1: Investment is $66 000; Life of project is 3 years; Annual receipts is $31 000 per year Project 2: Investment is $72 000; Life of project is 6 years; Annual receipts is $20 000 per year Project 3: Investment is $60 000; Life of project is 8 years; Annual receipts is $16 000 per year Project 4: Investment is $43 000; Life of project is 4 years; Annual receipts is $17 000 per year Required: Based on the information above, which project should be rejected? Show calculations and provide explanations.
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 Ltd can invest in three out of the following four projects. The company’s cost of capital is
8%. The following is the details of the four projects:-
Project 1:
Investment is $66 000; Life of project is 3 years; Annual receipts is $31 000 per year
Project 2:
Investment is $72 000; Life of project is 6 years; Annual receipts is $20 000 per year
Project 3:
Investment is $60 000; Life of project is 8 years; Annual receipts is $16 000 per year
Project 4:
Investment is $43 000; Life of project is 4 years; Annual receipts is $17 000 per year
Required:
Based on the information above, which project should be rejected? Show calculations and
provide explanations.
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