Initial Cash Outlay Associated With Project A Is P50,000 And The Initial Cash Outlay Associated With Project B Is P70,000. The Required Rate Of Return On Both Projects Is 12%. The Expected Annual Free Cash Flows From Each Project Are As Follows: YEAR PROJECT A PROJECT B 0 -50,000 -70,000 1 12000 13,000 2 12000 13000 3 12000 13000 4 12000 13000 5 12000 13000 6 12,000 13000 Required: a.For both projects, calculate
Initial Cash Outlay Associated With Project A Is P50,000 And The Initial Cash Outlay Associated With Project B Is P70,000. The Required Rate Of Return On Both Projects Is 12%. The Expected Annual Free Cash Flows From Each Project Are As Follows: YEAR PROJECT A PROJECT B 0 -50,000 -70,000 1 12000 13,000 2 12000 13000 3 12000 13000 4 12000 13000 5 12000 13000 6 12,000 13000 Required: a.For both projects, calculate
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter26: Capital Investment Analysis
Section: Chapter Questions
Problem 3CMA
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Question 3
Fisca Ltd Is Considering Two Independent Projects, Project A And Project B. The Initial Cash Outlay Associated With Project A Is P50,000 And The Initial Cash Outlay Associated With Project B Is P70,000. The Required
YEAR |
PROJECT A |
PROJECT B |
0 |
-50,000 |
-70,000 |
1 |
12000 |
13,000 |
2 |
12000 |
13000 |
3 |
12000 |
13000 |
4 |
12000 |
13000 |
5 |
12000 |
13000 |
6 |
12,000 |
13000 |
Required:
a.For both projects, calculate
- The
net present value . - The
internal rate of return . - The profitability index.
- Assuming there is capital rationing, advice Fisca ltd which project should be accepted over the other.
- Explain the limitations of using a profitability index in a situation where there is capital rationing.
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