Legarda Company uses a 12% hurdle rate for all capital expenditures. It screens investments using three evaluation techniques: the net present value, the profitability index, and the internal rate of return. It has lined up four projects with the following information. A B C D Initial cash outflow 400,000 596,000 496,000 544,000 Annual cash inflows Year 1 130,000 200,000 160,000 190,000 2 140,000 270,000 190,000 250,000 3 180,000 180,000 180,000 4 130,000 160,000 120,000 If the company has a capital budget of P1,500,000, what projects should be pursued based on the three criteria? Show necessary computations on your solution.
Legarda Company uses a 12% hurdle rate for all capital expenditures. It screens investments using three evaluation techniques: the net present value, the profitability index, and the internal rate of return. It has lined up four projects with the following information. A B C D Initial cash outflow 400,000 596,000 496,000 544,000 Annual cash inflows Year 1 130,000 200,000 160,000 190,000 2 140,000 270,000 190,000 250,000 3 180,000 180,000 180,000 4 130,000 160,000 120,000 If the company has a capital budget of P1,500,000, what projects should be pursued based on the three criteria? Show necessary computations on your solution.
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 11P
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Legarda Company uses a 12% hurdle rate for all capital expenditures. It screens investments using three evaluation techniques: the
|
A |
B |
C |
D |
Initial |
400,000 |
596,000 |
496,000 |
544,000 |
Annual |
|
|
|
|
Year 1 |
130,000 |
200,000 |
160,000 |
190,000 |
2 |
140,000 |
270,000 |
190,000 |
250,000 |
3 |
|
180,000 |
180,000 |
180,000 |
4 |
|
130,000 |
160,000 |
120,000 |
If the company has a capital budget of P1,500,000, what projects should be pursued based on the three criteria? Show necessary computations on your solution.
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