FB Company is considering investing in two construction projects, and he developed the following estimates of the cash flows. His required return is 10% and views these projects as equally risky. Required: a) Calculate the net present value (NPV) of each project, assess its acceptability, and indicate which project is best using NPV. b) Calculate the profitability index (PI) of each project, assess its acceptability, and indicate which project is best using PI. c) If both the projects have recorded a positive NPV value and the projects are mutually exclusive, which projects would you recommend for FB Company to undertake? Why?
FB Company is considering investing in two construction projects, and he developed the following estimates of the cash flows. His required return is 10% and views these projects as equally risky. Required: a) Calculate the net present value (NPV) of each project, assess its acceptability, and indicate which project is best using NPV. b) Calculate the profitability index (PI) of each project, assess its acceptability, and indicate which project is best using PI. c) If both the projects have recorded a positive NPV value and the projects are mutually exclusive, which projects would you recommend for FB Company to undertake? Why?
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
FB Company is considering investing in two construction projects, and he developed the following estimates of the cash flows. His required return is 10% and views these projects as equally risky.
Required:
a) Calculate the
b) Calculate the profitability index (PI) of each project, assess its acceptability, and indicate which project is best using PI.
c) If both the projects have recorded a positive NPV value and the projects are mutually exclusive, which projects would you recommend for FB Company to undertake? Why?
Transcribed Image Text:Project 1 cash flows
-$550,000
$150,000
$200,000
$150,000
$150,000
$100,000
Project 2 cash flows
-$700,000
$200,000
$150,000
$250,000
$150,000
$150,000
Year
1
3
2.
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