Subject :Principle of Finance

Chapter 9: Capital Investment Decision Analysis I

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Question 1

a) i) NPV ( Net present value)

ii) Payback period using discounting method

iii) Profitability index

QUESTION 1 The finance manager of Bermuda Corporation is deciding on which project to choose as their future investment. Given is the future cash flow of both the project. Year Project A Project B 0 150,000 180.000 40.000 35,000 35,000 54,000 27.000 15.000 30.000 30.000 5 39.000 24,000 Based on the information given, a) Calculate the following, given the discount rate is 15% i. NPV ii. Payback period using discou iii. nting method iv. Profitability index b) How the decision making process will be affected if the projects are i. Independent ii. Mutually exclusive