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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 |
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