Lily Company is considering investing P8,000,000 in a project, for a required return of 9%. The projects that were considered were as follows: Expected Earnings after Year 1 Project A P 2,500,000 3,200,000 4,000,000 2,400,000 1,600,000 Project B 800,000 2,400,000 3,200,000 4,800,000 3,200,000 Required: 1. Calculate the payback period for both prospective projects. 2. Calculate the net present value for both prospective projects. 3. Assuming that the projects are mutually exclusive projects, and the firm has only P10,000,000, which project should the firm push through and why? In answering, a) Describe/define what mutually exclusive projects are. Based on this, how will you decide? b) Use your answers in 1 and 2 above to justify your decision.
Lily Company is considering investing P8,000,000 in a project, for a required return of 9%. The projects that were considered were as follows: Expected Earnings after Year 1 Project A P 2,500,000 3,200,000 4,000,000 2,400,000 1,600,000 Project B 800,000 2,400,000 3,200,000 4,800,000 3,200,000 Required: 1. Calculate the payback period for both prospective projects. 2. Calculate the net present value for both prospective projects. 3. Assuming that the projects are mutually exclusive projects, and the firm has only P10,000,000, which project should the firm push through and why? In answering, a) Describe/define what mutually exclusive projects are. Based on this, how will you decide? b) Use your answers in 1 and 2 above to justify your decision.
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
Transcribed Image Text:Lily Company is considering investing P8,000,000 in a project, for a required
return of 9%. The projects that were considered were as follows:
Project A
P 2,500,000
3,200,000
4,000,000
2,400,000
1,600,000
Expected Earnings after Year
1
Project B
P 800,000
2,400,000
3,200,000
4,800,000
3,200,000
4.
Required:
1. Calculate the payback period for both prospective projects.
2. Calculate the net present value for both prospective projects.
3. Assuming that the projects are mutually exclusive projects, and the firm
has only P10,000,000, which project should the firm push through and
why?
In answering,
a) Describe/define what mutually exclusive projects are. Based on this,
how will you decide?
b) Use your answers in 1 and 2 above to justify your decision.
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