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ABC Company is medium sized metal fabricator that is currently contemplating two projects: Project A require an initial investment of $ 100,000, Project B require an initial investment of $ 90,000. Assume the ABC Company has a 10 % cost of capital and the relevant cash flows for the two projects are presented in the table below: Project   Project  A  Project B Initial Investment   100,000 90,000 Year   Operating  Cash Flow 1   34000 47000 2   34000 30000 3   34000

ABC Company is medium sized metal fabricator that is currently contemplating two projects: Project A require an initial investment of $ 100,000, Project B require an initial investment of $ 90,000. Assume the ABC Company has a 10 % cost of capital and the relevant cash flows for the two projects are presented in the table below: Project   Project  A  Project B Initial Investment   100,000 90,000 Year   Operating  Cash Flow 1   34000 47000 2   34000 30000 3   34000

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 7P: Your division is considering two investment projects, each of which requires an up-front expenditure...
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ABC Company is medium sized metal fabricator that is currently contemplating two projects: Project A require an initial investment of $ 100,000, Project B require an initial investment of $ 90,000. Assume the ABC Company has a 10 % cost of capital and the relevant cash flows for the two projects are presented in the table below:

Project

 

Project  A

 Project B

Initial Investment

 

100,000

90,000

Year

 

Operating  Cash Flow

1

 

34000

47000

2

 

34000

30000

3

 

34000

28000

4

 

34000

28000

5

 

34000

28000

 

Require:

a)       Based on the payback period evolution technique, which project will you recommend for ABC Company? 

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