ABC Company is medium sized metal fabricator that is currently contemplating two projects: Project A require an initial investment of $ 100,000, Project B require an initial investment of $ 90,000. Assume the ABC Company has a 10 % cost of capital and the relevant cash flows for the two projects are presented in the table below: Project Project A Project B Initial Investment 100,000 90,000 Year Operating Cash Flow 1 34000 47000 2 34000 30000 3 34000
ABC Company is medium sized metal fabricator that is currently contemplating two projects: Project A require an initial investment of $ 100,000, Project B require an initial investment of $ 90,000. Assume the ABC Company has a 10 % cost of capital and the relevant cash flows for the two projects are presented in the table below: Project Project A Project B Initial Investment 100,000 90,000 Year Operating Cash Flow 1 34000 47000 2 34000 30000 3 34000
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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Question
ABC Company is medium sized metal fabricator that is currently contemplating two projects: Project A require an initial investment of $ 100,000, Project B require an initial investment of $ 90,000. Assume the ABC Company has a 10 % cost of capital and the relevant cash flows for the two projects are presented in the table below:
|
Project |
|
Project A |
Project B |
|
Initial Investment |
|
100,000 |
90,000 |
|
Year |
|
Operating Cash Flow |
|
|
1 |
|
34000 |
47000 |
|
2 |
|
34000 |
30000 |
|
3 |
|
34000 |
28000 |
|
4 |
|
34000 |
28000 |
|
5 |
|
34000 |
28000 |
Require:
a) Based on the payback period evolution technique, which project will you recommend for ABC Company?
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