Question
Consider the following expected cashflows for two potential investments, A and B. Time Investment A () Investment B () 0 -100,000 -100,000 1 45,000 20,000
Consider the following expected cashflows for two potential investments, A and B.
| Time | Investment A () | Investment B () |
| 0 | -100,000 | -100,000 |
| 1 | 45,000 | 20,000 |
| 2 | 55,000 | 30,000 |
| 3 | 15,000 | 70,000 |
(a) Using a discount rate of 4% calculate the Net Present Value (NPV), Payback Period and Profitability Index (PI) for each project. If there is a constraint on capital which investment should you chose, and why? If there is no capital constraint which should you chose? Recalculate the NPV of each investment using a discount rate of 8%, does this affect your answer?
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 Management Concepts and Applications
Authors: Stephen Foerster
1st edition
013293664X, 978-0132936644
