Question
Orange Corporation is considering two capital investment proposals. At this time, Orange onlyhas funds available to pursue one of the two investments. The forecasts for
Orange Corporation is considering two capital investment proposals. At this time, Orange onlyhas funds available to pursue one of the two investments. The forecasts for the projects are as follows:
Capital investment
project A 200,000
Project B 300,000
Net annual cash flows
project A 60,000
Project B 65,000
Useful life (years)
project A 5
Project B 7
Note: PV of Annuity of 1 Table:
Period Discount Rate
10% 15% 20%
5 3.791 3.352 2.991
6 4.355 3.784 3.326
7 4.868 4.160 3.605
Required:
1- Compute the Payback period for each project.
2- Compute the PI for each project.
3- Compute the IRR for each project.
4- How can sensitivity analysis be used by Orange Corporationto increase the benefits of capital budgeting?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered 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