Question
A&B Enterprises is trying to select the best investment from two alternatives. Each alternative involves an initial outlay of $100,000. The cash flows follow: Year
A&B Enterprises is trying to select the best investment from two alternatives. Each alternative involves an initial outlay of $100,000. The cash flows follow:
| Year | C | D |
| 1 | 25,000 | 0 |
| 2 | 25,000 | 0 |
| 3 | 25,000 | 45,000 |
| 4 | 25,000 | 55,000 |
| 5 | 25,000 | 60,000 |
- Evaluate and rank each project alternative based on (a) payback period, (b) net present value (use a 10% discount rate), (c) profitability index, and (d) internal rate of return.
- For project C & D,
- Determine net present value of each project, based on zero discount rate.
- Determine net present value of each project, based on 15% discount rate.
- Explain your results
- Why is capital budgeting an important analysis tool?
- What was the simplest method for you to use and why?
- Outline 2 real world applications/scenarios where you would use a capital budgeting technique
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Financial Management Theory And Practice
Authors: Eugene F Brigham, Michael C Ehrhardt
11th Edition
0324259689, 9780324259681
