Question
Marge Simpson Inc. has following business opportunities with following cash flow information. Assume Marges opportunity cost of capital is 12%. Year Project A Project B
Marge Simpson Inc. has following business opportunities with following cash flow information. Assume Marges opportunity cost of capital is 12%.
| Year | Project A | Project B |
| 0 | $20,000 | $20,000 |
| 1 | 15,000 | 2,000 |
| 2 | 15,000 | 2,500 |
| 3 | 13,000 | 3,000 |
| 4 | 3,000 | 50,000 |
- Calculate NPV for both projects.
- Calculate IRR for both projects (Hint: the equation of calculating IRR).
- Calculate profitability index for both projects.
- Calculate payback period for both projects.
- Which business opportunity is better? Use IRRA=54.7%, IRRB=33.3%, cross over point=14.1%. (Hint: provide your choice with different discount rate)
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Fundamentals Of Futures And Options Markets
Authors: John Hull
9th Global Edition
1292422114, 9781292422114
