Fill This Form To Receive Instant Help
Homework answers / question archive / You are considering two mutually exclusive projects that have the following characteristics: Project A: Initial Investment of $100
You are considering two mutually exclusive projects that have the following characteristics:
Project A: Initial Investment of $100. Cash flow of 0 at year 1 and $144 at year 2.
Project B: Initial Investment of $50. Cash flow of $65 at year 1 and 0 at year 2.
Assume that the required rate of return is 15%. Please offer your recommendations for the best project choice.
1. What is NPV of project A? Round to two digits after decimal. Round to two digits after decimal.
2. What is NPV of project B? Round to two digits after decimal
3. Which project should we select based on NPV rule? Type, A , B, or None.
4. What is IRR of project A? Round to nearest % point.
5. What is IRR of project B? Round to nearest % point.
6. Which project should we select based on IRR analysis? Type, A , B, or None.
7. What is PI (profitability index) for project A?
8. What is PI (profitability index) for project B?
9. Which project should we select based on PI rule? Type, A , B, or None. Round to two digits after decimal.
10. To take care of the potential scale problem, calculate PI of the incremental cash flows. Round to two digits after decimal.
11. Based on PI of the incremental cash flows, which project is better. Type, A or B.
1). NPV of project A = $8.88
2). NPV of project B = $6.52
3). When the project are mutually exclusive the project that have higher NPV should be accepted. So, the project A should be accepted because it has higher NPV than project B.
4). IRR of project A = 20%
5). IRR of project B = 30%
6). When the project are mutually exclusive the project that have higher IRR should be accepted. So, the project B should be accepted because it has higher IRR than project A.
7). PI of project A = 1.09
8). PI of project B = 1.13
9). When the project are mutually exclusive the project that have higher PI should be accepted. So, the project B should be accepted because it has higher PI than project A.
10). PI of incremental cash flow according to project A = 1.05
PI of incremental cash flow according to project B = 0.95
11). Based on PI of the incremental cash flows project A is better because it has higher PI than project B.