1. A&B Enterprises is trying to select the best investment from among three alternatives. Each alternative involves an initial outlay of $100,000. The companys cost of capital is 10%. The incremental after tax cash inflows for each project are as follows:

Year AB C

1 2 3 4 5

$20,000 20,000 20,000

30,000 60,000

$50,000 40,000 30,000

0 0

$25,000 25,000 25,000

25,000 25,000

a) Payback

1) Calculate the payback period (2 decimal) for each project (2 marks)

2) Evaluate and rank each alternative (i.e. 1st, 2nd, 3rd) based on payback period. (1 marks)

b) Net Present Value (NPV)

1) Calculate the NPV for each project (2 marks)

2) Evaluate and rank each alternative (i.e. 1st, 2nd, 3rd) based on the net present value. Are there any projects you would not

recommend? Why? (2 marks)

c) Profitability Index (PI)

1) Calculate the PI (2 decimal) for each project (2 marks)

2) Evaluate and rank each alternative (i.e. 1st, 2nd, 3rd) based on the PI. (1 marks)

IBM 2010 Capital Budgeting Assignment (upload hand written copy) 1. A&B Enterprises is trying to select the best investment from among three alternatives. Each alternative involves an initial outlay of S100,000. The company's cost of capital is 10%. The incremental after tax cash inflows for each project are as follows: Year A $20.000 20,000 20.000 30,000 60,000 B $50,000 40,000 30,000 $25,000 25,000 25.000 25,000 25,000 a) Payback 1) Calculate the payback period (2 decimal) for each project (2 marks) 2) Evaluate and rank each alternative dic. 1st, 2nd, 3rd) based on payback period. (1 marks) b) Net Present Value (NPV) 1) Calculate the NPV for each project (2 marks) 2) Evaluate and rank each alternative (ie 1st, 2nd, 3rd) based on the net present value. Are there any projects you would not recommend? Why? (2 marks) c) Profitability Index (PD) 1) Calculate the PI (2 decimal) for each project (2 marks) 2) Evaluate and rank cach alternative (1.c. Ist, 2nd, 3rd) based on the PL. (1 marks) Present Value Tables Table Present Value Interest Factors for One Dollar Discounted at * Percent for n Periods: PVIF..=1/(1+x)" Period 23 0.9259 2 0.003 0 $426 09246 03070 O asoo 0.8734 0.857a a 0.7921 5 0.7472 0% 14 0.9901 3% 9109 4% 0.9915 1 0.9524 7% 0.9345 0.9434 0.9804 09612 0.9429 0.9230 0.9057 0.8396 0.9706 0.0610 0.9515 4 0.9151 Q.BBS 0.8620 0.8-890 0.8540 0.8219 0.8636 08227 0.7836 0.8163 0.7620 0.7130 0.7938 0.7350 B.GROS . 7 . 9 10 Period 1 0.6302 0.5835 0.6403 0.5002 0.4832 05420 0.8327 0.9236 0.9143 0.9053 9 0.9174 0.8417 0.7722 0.7084 0.8499 OARD 0.8708 0.8530 0.33GB 0.8203 10% 0.0001 0.8264 0.7513 0.63 0.6209 0.8375 0.8131 0.7094 0.7664 0.7441 115 0.9000 0.8116 0.7012 0.667 0.6835 0.7903 0.7598 0.7307 0.7026 0.6756 129 0.8920 0.7972 0.7118 0.6366 0.0674 0.7462 07107 0.6768 0.6446 0.8130 1376 0.3850 0.7831 0.6931 0.6133 0.6428 0.7050 0.8661 0.6274 0.5919 0.6684 14% 0.8772 0.7695 0.6750 0.6921 0.5794 0.ca 0.8227 0.6820 0.5439 9.5083 15% 0.069 0.7561 0.6675 0.5710 0.4972 a 4 . 0.0621 0.7492 0.5407 0.6823 0.4761 6 7 0.896 0.54TO 0.501 0.4604 0.4224 0.58.48 0.5132 0.4666 0.4241 0.3858 0.5346 0.4817 0.4339 0.3909 0.3522 0.6056 0.4523 0.4099 0.3605 0.3220 0.4803 0.4261 0.37 0.232 0.2546 0.4556 0.3996 0.3600 0.3075 0 2697 0.4323 0.3750 0.3269 0.2843 0.2472 0.4104 0.3530 0.3050 0.2690 0.2267 9 10