Situation: Assume that you are planning to invest for the expansion of your business. You consider the two projects: large expansion which costs PHP 1,100,000 and medium expansion which costs PHP500,000. The discount rate is 8% annually. You are task to do the following. Also, you interpret your result (for problem solving). 1 -ancion 4. Calc 5. sion 6. Calculate the Profitability Index for Medium Expansion 7. Calculate the Payback period for Large Expansion 8. Calculate the Payback period for Medium Expansion 9. Create an Evaluation Summary indicating the NPV, IRR, PI, and Payback period of all options. Please see the PDF lecture notes or lecture video for the guide. 10. Based on the NPV, IRR, PI, and Payback period of each project option, what is the best option for the expansion of your business? Discuss your answer. Project A Large Expansion PHP 1,100,000 Project B Medium Expansion PHP 500,000 Particulars Initial Investment Outlay Cash Inflows Year 1 PHP 250,000 PHP 300,000 PHP 350,000 PHP 400,000 PHP 100,000 PHP 120,000 PHP 150,000 Year 2 Year 3 Year 4 PHP 170, 000
Situation: Assume that you are planning to invest for the expansion of your business. You consider the two projects: large expansion which costs PHP 1,100,000 and medium expansion which costs PHP500,000. The discount rate is 8% annually. You are task to do the following. Also, you interpret your result (for problem solving). 1 -ancion 4. Calc 5. sion 6. Calculate the Profitability Index for Medium Expansion 7. Calculate the Payback period for Large Expansion 8. Calculate the Payback period for Medium Expansion 9. Create an Evaluation Summary indicating the NPV, IRR, PI, and Payback period of all options. Please see the PDF lecture notes or lecture video for the guide. 10. Based on the NPV, IRR, PI, and Payback period of each project option, what is the best option for the expansion of your business? Discuss your answer. Project A Large Expansion PHP 1,100,000 Project B Medium Expansion PHP 500,000 Particulars Initial Investment Outlay Cash Inflows Year 1 PHP 250,000 PHP 300,000 PHP 350,000 PHP 400,000 PHP 100,000 PHP 120,000 PHP 150,000 Year 2 Year 3 Year 4 PHP 170, 000
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
Answer 6-10
Transcribed Image Text:B. CAPITAL BUDGETING
Situation: Assume that you are planning to invest for the expansion of your business. You consider the
two projects: large expansion which costs PHP 1,100,000 and medium expansion which costs
PHP500,000. The discount rate is 8% annually. You are task to do the following. Also, you interpret your
result (for problem solving).
1
-ncion
4. Calc
5.
-sion
6. Calculate the Profitability Index for Medium Expansion
7. Calculate the Payback period for Large Expansion
8. Calculate the Payback period for Medium Expansion
9. Create an Evaluation Summary indicating the NPV, IRR, PI, and Payback period of all options.
Please see the PDF lecture notes or lecture video for the guide.
10. Based on the NPV, IRR, PI, and Payback period of each project option, what is the best option for
the expansion of your business? Discuss your answer.
Project A
Large Expansion
PHP 1,100,000
Project B
Medium Expansion
Particulars
Initial Investment Outlay
PHP 500,000
Cash Inflows
Year 1
PHP 250,000
PHP 100,000
Year 2
Year 3
PHP 300,000
PHP 120,000
PHP 150,000
PHP 170, 000
PHP 350,000
Year 4
PHP 400,000
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