Question
Two investments, G and H, have the following projected cash flows. Investment G requires an initial investment of $40,000, and Investment H requires $45,000. Year
Two investments, G and H, have the following projected cash flows. Investment G requires an initial investment of $40,000, and Investment H requires $45,000.
Year | Investment G | Investment H |
1 | $10,000 | $15,000 |
2 | $15,000 | $12,000 |
3 | $20,000 | $10,000 |
4 | $25,000 | $8,000 |
a) Calculate the NPV for each investment using a discount rate of 7%.
b) Determine the profitability index for each investment.
c) State your accept/reject decision for each investment if they are mutually exclusive.
d) Calculate the payback period for each investment.
e) Analyze the sensitivity of each investment's NPV to a 2% increase in the discount rate.
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