Question
Susan Corporation Holdings is considering two mutually exclusive projects. The company intends to invest in either one of the projects. Susan Corporation Holdings required rate
Susan Corporation Holdings is considering two mutually exclusive projects. The company intends to invest in either one of the projects. Susan Corporation Holdings required rate of return is 10 percent. Initial outlay for the investment is $50,000. The annual average profit for projects A and B is $25,900 and $13,800 respectively. The cash inflows after tax from both projects are as follows:
Year | Project A | Project B |
1 | 10,500 | 10,650 |
2 | 20,650 | 12,400 |
3 | 20,000 | 15,000 |
4 | 25,200 | 33,600 |
5 | 10,000 | 1,000 |
(a) Determine for both projects, A and B the following below
and Which project should May Corporation Holdings choose based on the Payback Period, NPV and PI methods and why?
- Average Accounting Return (AAR)
-Payback Period
- Net Present Value (NPV)
- Profitability Index
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