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Exercise Chapter 5 Capital Budgeting Project Analysis As director of capital budgeting you are reviewing three potential investment projects with the following cost and cash flow projections

Exercise - Chapter 5 - Capital Budgeting Project Analysis

As director of capital budgeting, you are reviewing three potential investment projects with the following cost and cash flow projections.

Cash Flow

Project A

Project B

Project C

Investment Cost

($400,000)

($375,000)

($400,000)

Year One Cash Flow

$200,000

$75,000

$50,000

Year Two Cash Flow

$50,000

$75,000

$120,000

Year Three Cash Flow

$75,000

$85,000

$140,000

Year Four Cash Flow

$50,000

$225,000

$125,000

Year Five Cash Flow

$125,000

$60,000

$125,000

Calculate the Payback Period for each project.

Question 2

If the discount rate for all three projects is 10.5%, calculate the Net Present Value for each project

Question 3

Calculate the Internal Rate of Return (IRR) for each project

Question 4

Assuming your capital investment budget of $500,000 will only allow selection of one project (thus the projects are now mutually exclusive), which project should you fund

 

Apr 08 2020 Read more Less More

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