Question
Q 10-19 A project has the following cash flows: PROJECT: Initial Investment Yearly Cash Flow Square Footage Required Project A $4,000,000.00 $450,000.00 75,000.00 Project B
Q 10-19
A project has the following cash flows:
| PROJECT: | Initial Investment | Yearly Cash Flow | Square Footage Required |
|---|---|---|---|
| Project A | $4,000,000.00 | $450,000.00 | 75,000.00 |
| Project B | $6,000,000.00 | $700,000.00 | 200,000.00 |
The cost of capital is 10.00% for the firm. The analyst will assume that the cash flows for the project will continue forever.
a] Find the profitability index for project's A, B, and C: Which project should be funded first?
b] what is the NPV for projects A and B?
c] Suppose that the firm is constrained on floor space. What is the NPV per square foot used for projects A and B?
d] If the firm is not constrained by square footage, which project is best for firm value? Which project is the most efficient?
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