1. Assuming the cost of capital is 12% , complete the table below by computing the payback period, NPV, profitability index, and internal rate of return. (Euture Value of $1. Present Value of $1. Euture Value Annuity of $1. Present Value Annuity of $1.) 2. Based strictly on the economic analysis, in which project should they invest? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Assuming the cost of capital is 12%, complete the table below by computing the payback period, NPV, profitability index, and internal rate f return. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Note: Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your "NPV" answers to the nearest whole dollar amounts. Round your "PI" and "IRR" answers to 2 decimal places. Required investment Annual cost savings Project life Salvage value Payback period NPV @ 12% Profitability index @ 12% Internal rate of retum Project A (Redesign production process) $ $ $ $ (504,000) 100,800 8 years 80,640 5 years 29.307 1.06 % Project B (Remodel office building) $ $ $ $ (423,360) 60,480 10 years 75,600 7 years (57,293) 0.86 % $ $ Project C (New training facility) (322,560) 80,640 $ S 6 years 30,240 4 years 24,304 1.08 % Show less A
Net Present Value
Net present value is the most important concept of finance. It is used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. The difference between the present value of cash inflow and cash outflow is termed as net present value (NPV). It is used for capital budgeting and investment planning. It is also used to compare similar investment alternatives.
Investment Decision
The term investment refers to allocating money with the intention of getting positive returns in the future period. For example, an asset would be acquired with the motive of generating income by selling the asset when there is a price increase.
Factors That Complicate Capital Investment Analysis
Capital investment analysis is a way of the budgeting process that companies and the government use to evaluate the profitability of the investment that has been done for the long term. This can include the evaluation of fixed assets such as machinery, equipment, etc.
Capital Budgeting
Capital budgeting is a decision-making process whereby long-term investments is evaluated and selected based on whether such investment is worth pursuing in future or not. It plays an important role in financial decision-making as it impacts the profitability of the business in the long term. The benefits of capital budgeting may be in the form of increased revenue or reduction in cost. The capital budgeting decisions include replacing or rebuilding of the fixed assets, addition of an asset. These long-term investment decisions involve a large number of funds and are irreversible because the market for the second-hand asset may be difficult to find and will have an effect over long-time spam. A right decision can yield favorable returns on the other hand a wrong decision may have an effect on the sustainability of the firm. Capital budgeting helps businesses to understand risks that are involved in undertaking capital investment. It also enables them to choose the option which generates the best return by applying the various capital budgeting techniques.
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