Question
A COMPANY is considering two alternative investment opportunities, each of which requires an initial cash outlay of $110,000. The expected net cash flows from the
A COMPANY is considering two alternative investment opportunities, each of which requires an initial cash outlay of $110,000. The expected net cash flows from the two projects follow:
Project A | Project Z | |
Year 1 | $30,000 | $44,000 |
Year 2 | 44,000 | 70,000 |
Year 3 | 70,000 | 30,000 |
Totals | $144,000 | $144,000 |
Required: (a) Using the incremental method, determine the payback period for project A. (b) Using the incremental method, determine the payback period fro project Z. (c) Use the table values bellow to find the net present value of the cash flows associated with project A and project Z, discounted at 12%
Periods | Present Value of 1 at 12% |
1 | 0.8929 |
2 | 0.7972 |
3 | 0.7118 |
(d) Based on a comparision of their net present values, and assuming the same discount rate (greater than 0) is required for both projects, which project is better investement? PLEASE BE SPECIFIC ON HOW YOU GET YOUR NUMBERS
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