Chapter 12 Assignment: Capital Budgeting 1. (30 points) An investment opportunity costing $85,000 is expected to yield net cash flows of $15,000 annually over six years. a. Calculate the NPV of the investment at a discount rate of 12%? b. Does this capital project appear to be a favorable investment? Why or why Not? 2. (40 points) ETP Co. has an investment opportunity costing ( initial investment) ($120,000) that is expected to yield the following cash flows over the next ten years: (a negative number means a cash outflow) Year 1: $24,000 Year 2: $27,000 Year 3: $24,000 Year 4: $30,000 Year 5: $39,000 Disinvestment payment at Year 5: ($9,000) - This is a negative number a. Find the NPV of the investment at a discount rate of 10%. b. Does this capital project appear to be a favorable investment based on NPV? Why or Why Not? c. What is the profitability Index of this project d. If a second project (X) with an initial investment of $50,000 which has a profitability index of 1.85 was also being considered, which project (ETP or X) would be best and why?