(Net present value, profitability index, and internal rate of return calculations). You are considering two independent projects, project A and project B. The initial cash outlay associated with project A is $50,000 and the initial cash outlay associated with project B is $70,000. The required rate of return on both projects is 12 percent. The expected annual free cash flows from each project are as follows: YEAR PROJECT A PROJECT B 0 -$50,000 -$70,000 1 12,000 13,000 2 12,000 13,000 3 12,000 13,000 4 12,000 13,000 5 12,000 13,000 6 12,000 13,000 Calculate the NPV, PI, and IRR for each project and indicate if the project should be accepted.
(Net present value, profitability index, and internal rate of return calculations). You are considering two independent projects, project A and project B. The initial cash outlay associated with project A is $50,000 and the initial cash outlay associated with project B is $70,000. The required rate of return on both projects is 12 percent. The expected annual free cash flows from each project are as follows: YEAR PROJECT A PROJECT B 0 -$50,000 -$70,000 1 12,000 13,000 2 12,000 13,000 3 12,000 13,000 4 12,000 13,000 5 12,000 13,000 6 12,000 13,000 Calculate the NPV, PI, and IRR for each project and indicate if the project should be accepted.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 22E
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Net present value , profitability index, andinternal rate of return calculations). You are considering two independent projects, project A and project B. The initial cash outlay associated with project A is $50,000 and the initial cash outlay associated with project B is $70,000. The required rate of return on both projects is 12 percent. The expected annualfree cash flows from each project are as follows:
YEAR |
PROJECT A |
PROJECT B |
0 |
-$50,000 |
-$70,000 |
1 |
12,000 |
13,000 |
2 |
12,000 |
13,000 |
3 |
12,000 |
13,000 |
4 |
12,000 |
13,000 |
5 |
12,000 |
13,000 |
6 |
12,000 |
13,000 |
Calculate the NPV, PI, and IRR for each project and indicate if the project should be accepted.
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