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A company has $300,000 to invest in either Project A1 or Project B1. The cash flows are as follows: Year Project A1 Project B1 1
A company has $300,000 to invest in either Project A1 or Project B1. The cash flows are as follows:
Year | Project A1 | Project B1 |
1 | $80,000 | $30,000 |
2 | $80,000 | $50,000 |
3 | $80,000 | $120,000 |
4 | $80,000 | $170,000 |
5 | $80,000 | $70,000 |
The discount rate is 7%.
Required:
- For each project, calculate the:
- Simple payback period
- Discounted payback period
- Net present value
- Internal rate of return
- Profitability index
- Prepare a statement of retained earnings for the selected project.
- Advise the firm on which project to select based on the results of your calculations.
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