A company is considering 2 alternative investment proposals. The first proposal calls for total replacement of the company's machines and equipment, while the second proposal involves repairing some parts of the existing machines and equipment. The company will only choose to implement one of the proposed projects for this year. The projected cash flows associated with each project are as per table below. The discount rate used by the company is 15%. YEAR TOTAL REPLACEMENT (RM'000) REPAIR (RM'000) -9,000 -2,400 3,000 2,000 3,000 800 3 3,000 200 4 3,000 200 3,000 200
A company is considering 2 alternative investment proposals. The first proposal calls for total replacement of the company's machines and equipment, while the second proposal involves repairing some parts of the existing machines and equipment. The company will only choose to implement one of the proposed projects for this year. The projected cash flows associated with each project are as per table below. The discount rate used by the company is 15%. YEAR TOTAL REPLACEMENT (RM'000) REPAIR (RM'000) -9,000 -2,400 3,000 2,000 3,000 800 3 3,000 200 4 3,000 200 3,000 200
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section10.A: Mutually Exclusive Investments Having Unequal Lives
Problem 1P
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i) Calculate the profitability index of each project
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