Provide an evaluation of the two proposed projects whose cash flow forecasts are found below: Product A Product B Initial cost $750,000 $650,000 Expected life 5 years 5 years Scrap value expected $ - $35,000 Others expected cash inflows: Year $ $ 1 180,000 200,000 2 300,000 240,000 3 230,000 210,000 4 330,000 260,000 5 195,000 155,000 The company cost of capital for each project is 13 percent. The company relies on several criteria when evaluating new investment opportunities. The projects are independent. WHAT ARE YOUR THOUGHTS ON THESE 3 PROJECTS EVERTON was not surprised by the memo, for she had been expecting something like this for some time now. After re-reading the memo, EVERTON decided on her plan of action and made up the following to do list: Compute the ARR for each project Compute the payback period for each project Compute the Net Present Value (NPV) for each project Compute the Internal Rate of Return (IRR) for each project Compute the Profitability Index (PI) for each project
PLEASE SOLVE ALL SUBPARTS- USING FORMULA THANK YOU
EVERTON Major graduated from Mona School of Business and has been a Junior Financial Analyst at Proven Investment Ltd. When he arrived at work this morning, he found the following memo in his e-mail.
TO: EVERTON Major
FROM: J. C. Bens, CFO, Proven Investment Ltd.
RE: Capital Budgeting Analysis
Provide an evaluation of the two proposed projects whose cash flow
Product A Product B
Initial cost $750,000 $650,000
Expected life 5 years 5 years
Scrap value expected $ - $35,000
Others expected
Year $ $
1 180,000 200,000
2 300,000 240,000
3 230,000 210,000
4 330,000 260,000
5 195,000 155,000
The company cost of capital for each project is 13 percent. The company relies on several criteria when evaluating new investment opportunities. The projects are independent.
WHAT ARE YOUR THOUGHTS ON THESE 3 PROJECTS
EVERTON was not surprised by the memo, for she had been expecting something like this for some time now. After re-reading the memo, EVERTON decided on her plan of action and made up the following to do list:
- Compute the ARR for each project
- Compute the payback period for each project
- Compute the
Net Present Value (NPV) for each project - Compute the
Internal Rate of Return (IRR) for each project - Compute the Profitability Index (PI) for each project
What is your recommendation to the firm?
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