FB Company is considering investing in two construction projects, and he developed the following estimates of the cash flows. His required return is 10% and views these projects as equally risky. Year Project 1 cash flow project 2 cash flow 0 -550000 -700000 1 150000 200000 2 200000 150000 3 150000 250000 4 150000 150000 5 100000 150000 Required: a) Calculate the net present value (NPV) of each project, assess its acceptability, and indicate which project is best using NPV. b) Calculate the profitability index (PI) of each project, assess its acceptability, and indicate which project is best using PI. c) If both the projects have recorded a positive NPV value and the projects are mutually exclusive, which projects would you recommend for FB Company to undertake? Why?
FB Company is considering investing in two construction projects, and he developed the following estimates of the cash flows. His required return is 10% and views these projects as equally risky.
Year Project 1 cash flow project 2 cash flow
0 -550000 -700000
1 150000 200000
2 200000 150000
3 150000 250000
4 150000 150000
5 100000 150000
Required:
a) Calculate the
b) Calculate the profitability index (PI) of each project, assess its acceptability, and indicate which project is best using PI.
c) If both the projects have recorded a positive NPV value and the projects are mutually exclusive, which projects would you recommend for FB Company to undertake? Why?
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