Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 6 Not yet answered Marked out of 4.00 p Flag question Etisalat is in the process of choosing the better of two equal-risk, independent

image text in transcribed
image text in transcribed
Question 6 Not yet answered Marked out of 4.00 p Flag question Etisalat is in the process of choosing the better of two equal-risk, independent projects capital expenditure projects and B. The relevant cash flows for each project are shown in the following table. The firm's cost of capital is 10% Project A Project B Initial investment $26,500 $25,000 $10,000 $10,000 $10,000 $10,000 3 $10,000 $9,000 $10,000 $8,000 Required: a. Calculate each project's payback period, what are the disadvantages of the payback period? b. Calculate the net present value (NPV) for each project c. Calculate Profitability Index (PI) for each project. d. If you are given the internal rate of return (IRR) for project A is 20% and IRR for Project Bis 19%, which one you select and why? e. Summarize the preferences dictated by each measure (Payback period, NPV, PI, IRR), and indicate which project you would recommend. Explain why? 4 Payback period check 16062020 - Protected View - Saved to this PC Layout References Mailings Review View Help ernet can contain viruses. Unless you need to edit, it's safer to stay in Protected View. Enable Editing Class Check/Payback Period Q1: Nova Products has a 5-year maximum acceptable payback period. The firm is considering the purchase of a new machine and must choose between two alternative ones. The first machine requires an initial investment of $14,000 and generates annual after-tax cash inflows of $3,000 for each of the next 7 years. The second machine requires an initial investment of $21,000 and provides an annual cash inflow after taxes of $4,000 for 20 years. a. Determine the payback period for each machine. Payback period for machine A: Initial investment: 14000 S 1. 3000 2. 3000 6000 3. 3000 9000 4.3000 12000 5. 3000 4+ 2000/3000-4.67 years

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Project Finance In Theory And Practice

Authors: Stefano Gatti

3rd Edition

0128114010, 978-0128114018

More Books

Students also viewed these Finance questions

Question

What are some of the possible scenes from our future?

Answered: 1 week ago