Investment $96,000 $132,000 Expected after-tax cash flows: Year 1 $40,000 $52,000 Year 2 $32,000 $56,000 Year 3 $48,000 $40,000 Year 4 $24,000 $32,000 In addition, proposal B has an expected cash salvage value at the end of four years of $8,000. The present value of $1 due in 1, 2, 3, and 4 years at 15% is .86957, .75614, .65752, and .57175, respectively.
Investment $96,000 $132,000 Expected after-tax cash flows: Year 1 $40,000 $52,000 Year 2 $32,000 $56,000 Year 3 $48,000 $40,000 Year 4 $24,000 $32,000 In addition, proposal B has an expected cash salvage value at the end of four years of $8,000. The present value of $1 due in 1, 2, 3, and 4 years at 15% is .86957, .75614, .65752, and .57175, respectively.
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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aj.7
Steve's Stoves Company, which desires a minimum rate of
| A | B | |
| Initial Investment | $96,000 | $132,000 |
| Expected after-tax cash flows: | ||
| Year 1 | $40,000 | $52,000 |
| Year 2 | $32,000 | $56,000 |
| Year 3 | $48,000 | $40,000 |
| Year 4 | $24,000 | $32,000 |
In addition, proposal B has an expected cash salvage value at the end of four years of $8,000. The
Using the profitability index method, determine which project, if either, should be accepted by the company.
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