Question
12% Project A Time period 0 1 2 3 4 5 6 7 Cash flow (375) (300) (200) (100) 600 $600 $926 ($200) Disc. cash
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Project A | Time period | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | ||
Cash flow | (375) | (300) | (200) | (100) | 600 | $600 | $926 | ($200) | |||
Disc. cash flow |
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Disc. cum. cash flow |
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Discounted Payback |
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Project B | Time period | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | ||
Cash flow | (575) | 190 | 190 | 190 | 190 | $190 | $190 | $0 | |||
Disc. cash flow |
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Disc. cum. cash flow |
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Discounted Payback |
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f. What is the profitability index for each project if the cost of capital is 12%? | |||||||||||
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PV of future cash flows for A: |
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PI of A: | |||||||||||
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PV of future cash flows for B: |
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PI of B: | |||||||||||
g. Given that these projects are mutually exclusive (meaning JWU Construction can only undertake one of the projects), | |||||||||||
which project should the company select? | |||||||||||
h. If the projects were independent, how would this change your answer? Explain. |
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