The information below is for a firm that seeks to invest in any of the two projects namely Project L and S with an initial investment of K100,000 Here are the projects' net cash flows (in thousands of kwachas): Year 0 1 2 3 Project L -100,000 10,000 Project S -100,000 70,000 Depreciation, salvage values, net working capital requirements, and tax effects are all included in these cash flows. The Chief Financial Officer (CFO) also made subjective risk assessments of each project, and he concluded that both projects have risk characteristics that are similar to the firm's average project. The cost of capital is 10%. You must determine whether one or both of the projects should be accepted. 60,000 50,000 80,000 20,000
The information below is for a firm that seeks to invest in any of the two projects namely Project L and S with an initial investment of K100,000 Here are the projects' net cash flows (in thousands of kwachas): Year 0 1 2 3 Project L -100,000 10,000 Project S -100,000 70,000 Depreciation, salvage values, net working capital requirements, and tax effects are all included in these cash flows. The Chief Financial Officer (CFO) also made subjective risk assessments of each project, and he concluded that both projects have risk characteristics that are similar to the firm's average project. The cost of capital is 10%. You must determine whether one or both of the projects should be accepted. 60,000 50,000 80,000 20,000
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
Transcribed Image Text:QUESTION 2
The information below is for a firm that seeks to invest in any of the two projects
namely Project L and S with an initial investment of K100,000
Here are the projects' net cash flows (in thousands of kwachas):
Year
0
1
2
3
80,000
20,000
Project
L
Project S
Depreciation, salvage values, net working capital requirements, and tax effects
are all included in these cash flows. The Chief Financial Officer (CFO) also made
subjective risk assessments of each project, and he concluded that both projects
have risk characteristics that are similar to the firm's average project. The cost of
capital is 10%. You must determine whether one or both of the projects should be
accepted.
(a)
(b)
-100,000
10,000
-100,000 70,000
(c)
60,000
50,000
What is capital budgeting?
Calculate the project's NPV for project L and S. State which project should
be selected if the projects are:
i independent
ii) Exclusive
Calculate the payback period for project L and S. State which project
should be selected if the projects are:
i independent
ii) Exclusive
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