Baltusrol Inc. has the following three investment opportunities. A P70,000 10,000 Initial investment Initial working capital required Cash inflows by year: Year 1 P70,000 P70,000 8,000 5,000 P35,000 35,000 10,000 5,000 8.000 P83.000 P1,250 P35,000 10,000 45.000 20,000 2.000 P112,000 P10,000 P4,000 8,000 10,000 98,000 5,000 P125.000 P12,500 Year 2 Year 3 Year 4 Released working capital Total Average annual income Required: 1. Rank the investment opportunities in order of desirability using. A. Payback period. B. Average book rate of return (use average net book value of the investment as the denominator), and C. NPV using a 16% discount rate. Dotermine the proftabiahy indoy for each d rank the invostmonts based on these valuns
Baltusrol Inc. has the following three investment opportunities. A P70,000 10,000 Initial investment Initial working capital required Cash inflows by year: Year 1 P70,000 P70,000 8,000 5,000 P35,000 35,000 10,000 5,000 8.000 P83.000 P1,250 P35,000 10,000 45.000 20,000 2.000 P112,000 P10,000 P4,000 8,000 10,000 98,000 5,000 P125.000 P12,500 Year 2 Year 3 Year 4 Released working capital Total Average annual income Required: 1. Rank the investment opportunities in order of desirability using. A. Payback period. B. Average book rate of return (use average net book value of the investment as the denominator), and C. NPV using a 16% discount rate. Dotermine the proftabiahy indoy for each d rank the invostmonts based on these valuns
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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Transcribed Image Text:Baltusrol Inc. has the following three investment opportunities.
A
P70,000
10,000
B
Initial investment
Initial working capital required
Cash inflows by year:
Year 1
P70,000
5,000
P70,000
8,000
P35,000
35,000
10,000
5,000
8,000
P83.000
P1,250
P35,000
10,000
45.000
20,000
2,000
P112.000
P10,000
P4,000
8,000
10,000
98,000
5.000
P125.000
P12,500
Year 2
Year 3
Year 4
Released working capital
Total
Average annual income
Required:
1. Rank the investment opportunities in order of desirability using.
A. Payback period.
B. Average book rate of return (use average net book value of the investment as the denominator), and
C. NPV using a 16% discount rate.
2. Determine the profitability index for each opportunity and rank the investments based on these values.
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