Question
A company is considering two mutually exclusive investments. Investment A and investment B The costs of investment A are $ 4,100,000 and Investment B are
A company is considering two mutually exclusive investments. Investment A and investment B
The costs of investment A are $ 4,100,000 and Investment B are $1,420,000. Both projects have a MACRS depreciation with a life of 10 years.
The salvage value of investment A is $500,000 and Investment B is $120,000 both being apply at the end of the project, at T=10.
Below are the expected yearly revenues for the duration of the investments
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 | Year 9 | Year 10 | |
| Investment A | $600,000 | $600,000 | $600,000 | $600,000 | $320,000 | $320,000 | $320,000 | $260,000 | $260,000 | $260,000 |
| Investment B | $430,000 | $430,000 | $430,000 | $430,000 | $320,000 | $320,000 | $320,000 | $160,000 | $160,000 | $160,000 |
Both projects have a risk of 10% and a marginal tax rate of 30%.
Using excel:
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Estimate annual cash flows and depreciation
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Calculate NPV, IRR, MIRR and Payback period for each project
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Which calculation method should be used for the selection of this project, and why? Explain why the other methods are not appropriate.
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Options Trading For Beginners
Authors: Mike Hartley
1st Edition
979-8864514832
