The Canary Company is looking to invest in a new project.  They have narrowed it down to two potential projects – A and B.  The data on investment and cash flows for each project is outlined below.  Project    Initial Investment    Year One    Year Two    Year Three    Year Four Project A    $450,000    $200,000    $225,000    $275,000    $200,000 Project B    $500,000    $150,000    $200,000    $300,000    $250,000 The appropriate discount rate for each project is 16%.  With this information, determine the following information: •    NPV of cash flows for each project •    Profitability index for each project Based on your calculations, which project do you select and why?

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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The Canary Company is looking to invest in a new project.  They have narrowed it down to two potential projects – A and B.  The data on investment and cash flows for each project is outlined below. 

Project    Initial Investment    Year One    Year Two    Year Three    Year Four
Project A    $450,000    $200,000    $225,000    $275,000    $200,000
Project B    $500,000    $150,000    $200,000    $300,000    $250,000

The appropriate discount rate for each project is 16%.  With this information, determine the following information:

•    NPV of cash flows for each project
•    Profitability index for each project

Based on your calculations, which project do you select and why? 

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