Question 2 The Penny Wheel Company is considering the following two projects, but the firm can only invest in one of them: Project M Project C Initial outlay 800,000 800,000 Net cash flows: 400,000 400,000 100,000 50,000 100,000 300,000 500,000 500,000 Yearl Year 2 Year 3 Year 4 The company's cost of capital is 12%. Required: Calculate the payback period for each project Calculate the net present value for each project. "Essential to an understanding of the investment appraisal techniques of payback, accounting rate of return and net present value is the role of depreciation" a. b. с. Explain how you would treat depreciation in the computation for each of the above appraisal techniques. d. Explain why the Net Present Value is considered technically superior to the Payback and Profitability as an investment appraisal technique even though the latter are said to be easier to understand by management. (Your answer should highlight the strength of the NPV method and the weaknesses of the other two methods).

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
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please answer question a,b,c & D please

Question 2
The Penny Wheel Company is considering the following two projects, but the firm can only invest in one
of them:
Project M
$
800,000
Project C
Initial outlay
800,000
Net cash flows:
Yearl
400,000
400,000
100,000
50,000
100,000
300,000
500,000
500,000
Year 2
Year 3
Year 4
The company's cost of capital is 12%.
Required:
Calculate the payback period for each project
Calculate the net present value for each project.
"Essential to an understanding of the investment appraisal techniques of payback, accounting
rate of return and net present value is the role of depreciation"
a.
b.
C.
Explain how you would treat depreciation in the computation for each of the above appraisal techniques.
d.
Explain why the Net Present Value is considered technically superior to the Payback and
Profitability as an investment appraisal technique even though the latter are said to be easier to
understand by management. (Your answer should highlight the strength of the NPV method and
the weaknesses of the other two methods).
Transcribed Image Text:Question 2 The Penny Wheel Company is considering the following two projects, but the firm can only invest in one of them: Project M $ 800,000 Project C Initial outlay 800,000 Net cash flows: Yearl 400,000 400,000 100,000 50,000 100,000 300,000 500,000 500,000 Year 2 Year 3 Year 4 The company's cost of capital is 12%. Required: Calculate the payback period for each project Calculate the net present value for each project. "Essential to an understanding of the investment appraisal techniques of payback, accounting rate of return and net present value is the role of depreciation" a. b. C. Explain how you would treat depreciation in the computation for each of the above appraisal techniques. d. Explain why the Net Present Value is considered technically superior to the Payback and Profitability as an investment appraisal technique even though the latter are said to be easier to understand by management. (Your answer should highlight the strength of the NPV method and the weaknesses of the other two methods).
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