Question
A firm is considering two projects with the following cashflows. The required return for both projects is 12 percent. Year Project A Year Project B
A firm is considering two projects with the following cashflows. The required return for both projects is 12 percent.
| Year | Project A | Year | Project B |
| 0 | -$675,000 | 0 | -$160,000 |
| 1 | 297,000 | 1 | 75,000 |
| 2 | 389,000 | 2 | 75,000 |
| 3 | 184,000 | 3 | 85,000 |
Required: a. Calculate the NPV & IRR for both projects. (8 marks) b. Calculate the payback period (including the fraction of a year) for both projects. (3 marks) c. Calculate the profitability index of both projects. (3 marks) d. Using the in above calculations, which project or projects should the firm choose if the projects are: i) Independent. Explain (3 marks) ii) Mutually exclusive. Explain (3 marks)
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Contemporary Issues In Finance
Authors: Simon Grima, Frank Bezzina, Inna Romanova
1st Edition
1786359073, 978-1786359070
