As a Financial Analyst of Morgan Investments Co., you are going to make a business investment decision on which of the two possible investments the company should undertake. Both projects cost $200,000 with a rate of return of 12%. Below are the cash profits of the two projects: Year 1 2 3 4 5 6 Project A Project B Profits ($) 36,000 42,000 56,000 44,000 35,000 32,500 66,000 37,300 40,000 56,000 51,000 39,650 42,500 80,000 Question one: Using Discounted Payback, NPV and IRR methods, appraise the two projects and advise the Financial Director which of the projects is viable and why. Question two: Which of the methods is superior? Justify your answer.
As a Financial Analyst of Morgan Investments Co., you are going to make a business investment decision on which of the two possible investments the company should undertake. Both projects cost $200,000 with a rate of return of 12%. Below are the cash profits of the two projects: Year 1 2 3 4 5 6 Project A Project B Profits ($) 36,000 42,000 56,000 44,000 35,000 32,500 66,000 37,300 40,000 56,000 51,000 39,650 42,500 80,000 Question one: Using Discounted Payback, NPV and IRR methods, appraise the two projects and advise the Financial Director which of the projects is viable and why. Question two: Which of the methods is superior? Justify your answer.
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
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Transcribed Image Text:As a Financial Analyst of Morgan Investments Co., you are going to make a
business investment decision on which of the two possible investments the
company should undertake. Both projects cost $200,000 with a rate of return
of 12%. Below are the cash profits of the two projects:
Year
2
3
4
5
16
Project A
Project B
Profits ($)
36,000
42,000
56,000
44,000
35,000
32,500
66,000
37,300
40,000
56,000
51,000
39,650
42,500
80,000
Question one:
Using Discounted Payback, NPV and IRR methods, appraise the two projects
and advise the Financial Director which of the projects is viable and why.
Question two:
Which of the methods is superior? Justify your answer.
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