Investment $96,000 $132,000 Expected after-tax cash flows: Year 1 $40,000 $52,000 Year 2 $32,000 $56,000 Year 3 $48,000 $40,000 Year 4 $24,000 $32,000 In addition, proposal B has an expected cash salvage value at the end of four years of $8,000. The present value of $1 due in 1, 2, 3, and 4 years at 15% is .86957, .75614, .65752, and .57175, respectively.
Investment $96,000 $132,000 Expected after-tax cash flows: Year 1 $40,000 $52,000 Year 2 $32,000 $56,000 Year 3 $48,000 $40,000 Year 4 $24,000 $32,000 In addition, proposal B has an expected cash salvage value at the end of four years of $8,000. The present value of $1 due in 1, 2, 3, and 4 years at 15% is .86957, .75614, .65752, and .57175, respectively.
Chapter9: Capital Budgeting Techniques
Section: Chapter Questions
Problem 7PROB
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aj.7
Steve's Stoves Company, which desires a minimum
A | B | |
Initial Investment | $96,000 | $132,000 |
Expected after-tax cash flows: | ||
Year 1 | $40,000 | $52,000 |
Year 2 | $32,000 | $56,000 |
Year 3 | $48,000 | $40,000 |
Year 4 | $24,000 | $32,000 |
In addition, proposal B has an expected cash salvage value at the end of four years of $8,000. The present value of $1 due in 1, 2, 3, and 4 years at 15% is .86957, .75614, .65752, and .57175, respectively.
Using the profitability index method, determine which project, if either, should be accepted by the company.
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