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Two investments (A and B, below) have been proposed to the Capital Investment committee of your organization; a.The required rate of return for your company
Two investments (A and B, below) have been proposed to the Capital Investment committee of your organization;
a.The required rate of return for your company is 6%. What is the NPV for each investment?
b.What is the payback period for each investment?
c.Which investment would you recommend and why?
Investment A | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | ||
Required Rate of Return | ||||||||
Costs: | $150,000 | $10,000 | $10,000 | $10,000 | $10,000 | $10,000 | ||
Benefits: | $90,000 | $55,000 | $35,000 | $20,000 | $20,000 | |||
Investment B | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | ||
Required Rate of Return | ||||||||
Costs: | $80,000 | |||||||
Benefits: | $- | $45,000 | $15,000 | $10,000 | $10,000 | $15,000 |
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