Question
Year Cash Flow (A) Cash Flow (B) 0 -$29,000 -$29,000 1 14,400 4,300 2 12,300 9,800 3 9,200 15,200 4 5,100 16,800 Over what range
| Year | Cash Flow (A) | Cash Flow (B) |
| 0 | -$29,000 | -$29,000 |
| 1 | 14,400 | 4,300 |
| 2 | 12,300 | 9,800 |
| 3 | 9,200 | 15,200 |
| 4 | 5,100 | 16,800 |
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Over what range of discount rates would the company choose Project A? What range would cause the company to choose Project B? At what discount rate would the company be indifferent between these two projects? Explain.
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What is the payback period for each of these projects? Which project will the company choose if it applies the payback period decision rule?
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If the required return is 11%, what is the profitability index for each of these projects? Which project will the company choose if it applies the profitability index decision rule?
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Fundamentals of corporate finance
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
10th edition
978-1260013955, 78034639, 978-0078034633
