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
100%
Senior management asks you to recommend a decision on which project(s) to accept based on the cash flow
Relevant information:
- The firm uses a 3-year cutoff when using the payback method.
- The hurdle rate used to evaluate capital budgeting projects is 15%.
The cash flows for projects A, B and C are provided below.
|
|
Project A |
Project B |
Project C |
|
Year 0 |
-30,000 |
-20,000 |
-50,000 |
|
Year 1 |
0 |
4,000 |
20,000 |
|
Year 2 |
7,000 |
5,000 |
20,000 |
|
Year 3 |
20,000 |
6,000 |
20,000 |
|
Year 4 |
20,000 |
7,000 |
5,000 |
|
Year 5 |
10,000 |
8,000 |
5,000 |
|
Year 6 |
5,000 |
9,000 |
5,000 |
-
- Calculate the
net present value (NPV) for each project in excel. - Which projects would you accept based on the NPV criterion?
- Calculate the
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