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Calculate cach project's Payback Peried. Based on the payback periods, which project(s) should they accept the projectis) are independent. Which project(s) should they accept if the projects are mutually exclusive? i) Calculate each project's net Present Value (NPU). Based on the NPUS, which project(s) should they accept if the project(s) are independent. Which project(s) should they accept if the projects are mutually exclusive? i) Calculate the discounted payback period for the projects with posilive NPUS.

Calculate cach project's Payback Peried. Based on the payback periods, which project(s) should they accept the projectis) are independent. Which project(s) should they accept if the projects are mutually exclusive? i) Calculate each project's net Present Value (NPU). Based on the NPUS, which project(s) should they accept if the project(s) are independent. Which project(s) should they accept if the projects are mutually exclusive? i) Calculate the discounted payback period for the projects with posilive NPUS.

Essentials Of Investments
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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1. A. Facts Enterprises is trying to select the best inwestment from among four alternative independent projects presented by their respective firms. Each alternative involves an initial outlay of $80,000 and a 10% cost of capital. Management requires that all project investments should be recovered in 4 years. Their cash flows follow: Year Sun Ltd Moon Ltd Best Ltd Pep Ltd 1 30,000 20,000 20,500 2 25.000 30,000 20,500 30,000 3 20,000 20,500 4 15,000 20,000 20,500 28,000 10,000 10,000 20,500 25,000 6. 5,000 30,000 40,000 Calculate each project's Payback Period. Based on the payback periods, which project(s) should they accept if the project(s) are independent. Which project(s) should they accept if the projects are mutually exclusive? ü) Calculate each project's Net Present Value (NPU). Based on the NPUS, which project(s) should they accept if the project(s) are independent. Which project(s) should they accept if the projects are mutually exclusive? üi) Calculate the discounted payback period for the projects with positive NPUS. iw) What does it mean for projects to be mutually exclusive? How should managers rank mutually exclusive projects? B. What are the strength and weaknesses of each of the following capital budgeting technique below? i. Payback i. ARR ii. Profitability Index iv. IRR
Transcribed Image Text:1. A. Facts Enterprises is trying to select the best inwestment from among four alternative independent projects presented by their respective firms. Each alternative involves an initial outlay of $80,000 and a 10% cost of capital. Management requires that all project investments should be recovered in 4 years. Their cash flows follow: Year Sun Ltd Moon Ltd Best Ltd Pep Ltd 1 30,000 20,000 20,500 2 25.000 30,000 20,500 30,000 3 20,000 20,500 4 15,000 20,000 20,500 28,000 10,000 10,000 20,500 25,000 6. 5,000 30,000 40,000 Calculate each project's Payback Period. Based on the payback periods, which project(s) should they accept if the project(s) are independent. Which project(s) should they accept if the projects are mutually exclusive? ü) Calculate each project's Net Present Value (NPU). Based on the NPUS, which project(s) should they accept if the project(s) are independent. Which project(s) should they accept if the projects are mutually exclusive? üi) Calculate the discounted payback period for the projects with positive NPUS. iw) What does it mean for projects to be mutually exclusive? How should managers rank mutually exclusive projects? B. What are the strength and weaknesses of each of the following capital budgeting technique below? i. Payback i. ARR ii. Profitability Index iv. IRR
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