Question
Assignment 4 (3 points) Compute Discounted Payback (DPB) for both projects (A and B). Based on the DPB method, which project should the company accept
Assignment 4
- (3 points) Compute Discounted Payback (DPB) for both projects (A and B). Based on the DPB method, which project should the company accept if they are mutually exclusive projects.
| Year | Project A CFs | Project B CFs |
| 0 (NINV) | -100,000 | -100,000 |
| 1 | $50,000 | $20,000 |
| 2 | $50,000 | $20,000 |
| 3 | $50,000 | $20,000 |
| 4 | $20,000 | $50,000 |
| 5 | $20,000 | $50,000 |
| 6 | $20,000 | $50,000 |
Cost of capital for both projects = 11%
- (3.5 points) Consider the two unequal (repeating) projects below, which project should the company pick if the two projects are repeating projects? (Use either EAA or Replacement chain method). WACC = 10%.
| Year | Project D CFs | Project E CFs |
| 0 (NINV) | -100,000 | -100,000 |
| 1 | $30,000 | $45,000 |
| 2 | $30,000 | $45,000 |
| 3 | $30,000 | $45,000 |
| 4 | $30,000 |
|
| 5 | $30,000 |
|
| 6 | $30,000 |
|
- (5 points) Consider projects cash flows with the salvage value. Determine the Physical like vs economic life NPVs and suggest the best time to end the project? Use 10% as the cost of capital.
| Year | Project CFs | Salvage Value |
| 0 (NINV) | -100,000 | 100,000 |
| 1 | $60,000 | 50,000 |
| 2 | $70,000 | $35,000 |
| 3 | $80,000 | $20,000 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Financial Markets And Institutions
Authors: Frederic S. Mishkin, Stanley G. Eakins
7th Edition
013213683X, 978-0132136839
