Firm is considering two mutually exclusive-required project
Course:- Financial Management
Reference No.:- EM13942970

Assignment Help
Assignment Help >> Financial Management

Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.

TIME: 0 1 2 3

Project A CF: $ - 10,000 $ 10,000 $ 30,000 $ 3,000

Project B CF: $ - 30,000 $ 10,000 $ 20,000 $ 50,000

Use the Profitability Index (PI) decision rule to evaluate these projects; what is the PI for each project, and which one(s) should it be accepted or rejected?

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Financial Management) Materials
Winnebagel Corp. currently sells 24,000 motor homes per year at $62,000 each, and 9,000 luxury motor coaches per year at $99,000 each. The company wants to introduce a new por
Ratios from the most current and available 3 years with deltas and analysis of a competitor that is a corporation and not privately owned. Must include the following ratios: W
Fourteen years ago, the U.S. Aluminum Corporation borrowed $6.5 million. Since then, cumulative inflation has been 98 percent (a compound rate of approximately 65 percent per
Thomas Brothers is expected to pay a $1.3 per share dividend at the end of the year (that is, D1 = $1.3). The dividend is expected to grow at a constant rate of 4% a year. The
Warmack Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $570,000 is estimated to result in $240,000 in ann
The Caribbean Division of Mega-Entertainment Corporation just started operations. It purchased depreciable assets costing $40 million and having a four-year expected life, aft
You would like to invest some spare cash for six months in a U.S. Treasury bill. The current interest rate on six-month bills is 1% compounded semi-annually, and each bill pro
In recent years, the Fed has shown a willingness to decrease existing reserve requirements. Suppose that the transaction deposits at bank and other financial institutions tota