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uestion 2 Project Selection Dragon Products Company is considering two projects. The projects cash flows are as follows: EXPECTED NET CASH FLOWS YEAR PROJECT A
uestion 2
Project Selection
Dragon Products Company is considering two projects. The projects cash flows are as follows:
| EXPECTED NET CASH FLOWS | ||
| YEAR | PROJECT A | PROJECT B |
| 0 | ($10300) | (12,500) |
| 1 | 1700 | 2870 |
| 2 | 1930 | 2450 |
| 3 | 2500 | 4700 |
| 4 | 2800 | 4575 |
| 5 | 4200 | 3450 |
| Discount Rate for both pojects = 6.8% | ||
REQUIRED
- Find the Payback Period [PBP] of both projects
- What is the Discounted PBP of both projects ?
- Calculate the Net Present Value of the two projects and decide which one is better?
- What is the profitability index of both products ? What is the function of PI in project selection?
- What are the IRR of the projects ? Which of the projects is the best using IRR as a criteria? Why?
- Why is sunk cost not considered when deciding about selecting a project? Which cost is considered and why?
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