Question: You are a financial analyst for the Hitler Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each project is 12 percent. The projects’ expected net cash flows are as follows: Expected Net Cash Flows Year Project X Project Y 0 ($10,000) ($10,000) 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000 3,500 Required: Calculate each project’s payback period, discounted payback period, net present value (NPV), profitability index and internal rate of return (IRR). Which project or projects should be accepted if they are independent? Which project should be accepted if they are mutually exclusive?
Question: You are a financial analyst for the Hitler Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each project is 12 percent. The projects’ expected net cash flows are as follows: Expected Net Cash Flows Year Project X Project Y 0 ($10,000) ($10,000) 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000 3,500 Required: Calculate each project’s payback period, discounted payback period, net present value (NPV), profitability index and internal rate of return (IRR). Which project or projects should be accepted if they are independent? Which project should be accepted if they are mutually exclusive?
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:
You are a financial analyst for the Hitler Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each project is 12 percent. The projects’ expected net cash flows are as follows:
Expected Net Cash Flows
|
Year |
Project X |
Project Y |
|
0 |
($10,000) |
($10,000) |
|
1 |
6,500 |
3,500 |
|
2 |
3,000 |
3,500 |
|
3 |
3,000 |
3,500 |
|
4 |
1,000 |
3,500 |
Required:
- Calculate each project’s payback period, discounted payback period,
net present value (NPV), profitability index andinternal rate of return (IRR). - Which project or projects should be accepted if they are independent?
- Which project should be accepted if they are mutually exclusive?
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