An analyst has gathered the following information about two projects, each with a 12% required rate of return. Use the data below to calculate the NPV for each project and then answer the questions that follow. PROJECT A PROJECT B Initial cost RM 15,000 RM 20,000 Life 5 years 4 years Cash inflows RM 5,000/ year RM 7,500/ year NPV for project A: RM 3,024 NPV for project B: RM 2,780 If the project is independent, which project is more favorable? Should the company accept or reject both? If the projects are mutually exclusive, which project is more favorable? Should the company accept or reject both?
An analyst has gathered the following information about two projects, each with a 12% required rate of return. Use the data below to calculate the NPV for each project and then answer the questions that follow. PROJECT A PROJECT B Initial cost RM 15,000 RM 20,000 Life 5 years 4 years Cash inflows RM 5,000/ year RM 7,500/ year NPV for project A: RM 3,024 NPV for project B: RM 2,780 If the project is independent, which project is more favorable? Should the company accept or reject both? If the projects are mutually exclusive, which project is more favorable? Should the company accept or reject both?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 10P: Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year...
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- An analyst has gathered the following information about two projects, each with a 12% required
rate of return . Use the data below to calculate the NPV for each project and then answer the questions that follow.
|
PROJECT A |
PROJECT B |
Initial cost |
RM 15,000 |
RM 20,000 |
Life |
5 years |
4 years |
|
RM 5,000/ year |
RM 7,500/ year |
NPV for project A: RM 3,024
NPV for project B: RM 2,780
- If the project is independent, which project is more favorable? Should the company accept or reject both?
- If the projects are mutually exclusive, which project is more favorable? Should the company accept or reject both?
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