Question
(12 marks) Consider the following two mutually exclusive opportunities: Year Cash Flow (A) Cash Flow (B) 0 -512,000 -84,000 1 55,000 34,000 2 62,000 32,000
(12 marks) Consider the following two mutually exclusive opportunities:
| Year | Cash Flow (A) | Cash Flow (B) |
| |||
| 0 | -512,000 | -84,000 |
|
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| 1 | 55,000 | 34,000 |
|
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| 2 | 62,000 | 32,000 |
|
| ||
| 3 | 81,000 | 29,500 |
|
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| 4 | 590,000 | 17,600 |
|
| ||
Whichever project you choose, if any, you require a 13% return on your investment.
- (2 marks) Calculate the payback period for each project. If you apply the payback criterion, which investment will you choose?
- (3 marks) Calculate the discounted payback period for each project. If you apply the discounted payback criterion, which investment will you choose?
- (2 marks) Calculate the NPV for each project. If you apply the NPV criterion, which investment will you choose?
- (2 marks) Calculate the IRR for each project. If you apply the IRR criterion, which investment will you choose?
- (3 marks) Based on your answers in (a) through (e), which project will you finally choose? Why?
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Financial Accounting
Authors: Belverd E Needles, Marian Powers
10th Edition
0547193289, 9780547193281
