Question
Decimal places (when relevant): please keep 2 in all calculations. For interest rates, keep 2 digits in the form of 3.xx% unless otherwise specified. PLEASE
Decimal places (when relevant): please keep 2 in all calculations. For interest rates, keep 2 digits in the form of 3.xx% unless otherwise specified.
PLEASE SHOW ALL WORK! WITHOUT FINANCIAL CALCULATOR and NO EXCEL
If you are not going to answer all the parts to the question please leave it for someone else. THANKS
7. Freedom Corporation provides you with the following information about two mutually exclusive projects. The minimum required rate of return for the projects is 10%.
Year | Project A | Project B |
0 | -$2,400 | -$7,600 |
1 | 2,800 | 5,600 |
2 | 600 | 3,600 |
3 | 400 | 1,600 |
Which project should the company accept based on:
- the Profitability index rule? Also, briefly explain if the PI index allows for right decision.
- the IRR rule? Also, briefly explain if the IRR allows for the right decision
- the NPV rule? Also, briefly explain if the NPV allows for the right decision
- the Incremental IRR rule? Also, briefly explain if the Incremental rule allows for the right decision
- Assume now the projects are independent and the company has an investment budget of $10,000. Which project(s) should the company accept based on the PI, NPV, and IRR rules? Explain.
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