Net Cash Flows TD1 TD2 Year 1..... $ 20,000 $ 40,000 Year 2 30,000 40,000 Year 3 70,000 $120,000 40,000 $120,000 Totals. Requlred 1. Compute the payback period for both projects. Which project has the shortest payback period? 2. Assume that the company requires a 10% return from its investments. Compute the net present value of each project. 3. Drawing on your answers to parts 1 and 2, determine which project, if any, should be chosen. 4. Compute the internal rate of return for Project TD2. Based on its internal rate of return, should Project TD2 be chosen?
Net Cash Flows TD1 TD2 Year 1..... $ 20,000 $ 40,000 Year 2 30,000 40,000 Year 3 70,000 $120,000 40,000 $120,000 Totals. Requlred 1. Compute the payback period for both projects. Which project has the shortest payback period? 2. Assume that the company requires a 10% return from its investments. Compute the net present value of each project. 3. Drawing on your answers to parts 1 and 2, determine which project, if any, should be chosen. 4. Compute the internal rate of return for Project TD2. Based on its internal rate of return, should Project TD2 be chosen?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
White Company can invest in one of two projects, TD1 or TD2. Each project requires an initial investment of $101,250 and produces the year-end
Transcribed Image Text:Net Cash Flows
TD1
TD2
Year 1.....
$ 20,000 $ 40,000
Year 2
30,000
40,000
Year 3
70,000
$120,000
40,000
$120,000
Totals.
Transcribed Image Text:Requlred
1. Compute the payback period for both projects. Which project has the shortest payback period?
2. Assume that the company requires a 10% return from its investments. Compute the net present value of
each project.
3. Drawing on your answers to parts 1 and 2, determine which project, if any, should be chosen.
4. Compute the internal rate of return for Project TD2. Based on its internal rate of return, should Project
TD2 be chosen?
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