Question
Capital Budgeting Annual cash inflows from two competing investment opportunities are given below. Each investment opportunity will require the same initial investment of $4,000. Mike
Capital Budgeting
Annual cash inflows from two competing investment opportunities are given below. Each investment opportunity will require the same initial investment of $4,000. Mike Steal Company has a doubt about which investment opportunity is going to provide a higher return to the company.
| Year | Investment A | Investment B |
| 2021 | $3,300 | $980 |
| 2022 | 2,600 | 760 |
| 2023 | 2,100 | 690 |
- Compute the present value of the cash inflows for each investment using a 12% discount rate.
|
| Amount of Cash Flows | Present Value of Cash Flows | ||
| Year(s) | Investment A | Investment B | Investment A | Investment B |
| 2021 | $3,300 | $980 |
|
|
| 2022 | 2,600 | 760 |
|
|
| 2023 | 2,100 | 690 |
|
|
| Total |
|
|
|
|
- Compute Net Present Value.
|
| Investment A | Investment B |
| Present Value of Cash Flows
|
|
|
| Initial Cost
|
|
|
| Net Present Value (NPV)
|
|
|
- Which investment opportunities should be accepted based on the NPV analysis? Why?
- What is the Payback period for Investment A and Investment B?
- Which investment opportunities should be accepted based on the payback period? Why?
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Auditing Compensation And Benefits Programs
Authors: Kelli W. Vito
1st Edition
0894136720, 978-0894136726
