Question
KIBT Ltd is a consumer electronic company and considering to invest in either of two competing projects that will allow the company to eliminate a
KIBT Ltd is a consumer electronic company and considering to invest in either of two competing projects that will allow the company to eliminate a production bottleneck and meet the growing demand for its products. The company's engineering department narrowed the alternatives down to two projects A and B. Working with the accounting and finance personnel, the company's CFO developed the following estimates of the cash flows for A and B over the relevant 6-year time horizon. The firm has a 12 per cent required return and views these projects as equally risky.
Year Project A cash flows. Project B cash flows
0 -$660,000 -$950,000
1 $250,000 $190,000
2 $190,000 $170,000
3 $180,000 $180,000
4 $160,000 $260,000
5 $120,000 $570,000
6 $140,000 $320,000
By evaluating above 2 projects, explain the key methods that the firm can use to evaluate a potential investment.
(I have attached the image of the picture as well:-
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