Kenny, Inc. has identified the following two mutually exclusive projects. Project A -$25,000 20,000 5,000 3,000 10,000 Considering 10% required return for both projects. Year Project B -$28,000 7,000 3 4 1,000 -2,000 30,000 a. Calculate the NPV for each project, which one is more profitable? Why? b. If the payback cut-off is four years, which project should be accepted? Why? c. If the Internal Rate of Return (IRR) of projects A and B are 10% and 12% respectfully, which project would you choose? Why? d. Considering 10% required return, and applying profitability index criteria which investment would you choose? Why? e. After applying the last four investment criteria, which project should be chosen for investment and why?
Kenny, Inc. has identified the following two mutually exclusive projects. Project A -$25,000 20,000 5,000 3,000 10,000 Considering 10% required return for both projects. Year Project B -$28,000 7,000 3 4 1,000 -2,000 30,000 a. Calculate the NPV for each project, which one is more profitable? Why? b. If the payback cut-off is four years, which project should be accepted? Why? c. If the Internal Rate of Return (IRR) of projects A and B are 10% and 12% respectfully, which project would you choose? Why? d. Considering 10% required return, and applying profitability index criteria which investment would you choose? Why? e. After applying the last four investment criteria, which project should be chosen for investment and 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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