(Net present value, profitability index, and internal rate of return calculations). You are considering two independent projects, project A and project B. The initial cash outlay associated with project A is $50,000 and the initial cash outlay associated with project B is $70,000. The required rate of return on both projects is 12 percent. The expected annual free cash flows from each project are as follows: YEAR PROJECT A PROJECT B 0 -$50,000 -$70,000 1 12,000 13,000 2 12,000 13,000 3 12,000 13,000 4 12,000 13,000 5 12,000 13,000 6 12,000 13,000 Calculate the NPV, PI, and IRR for each project and indicate if the project should be accepted.
(Net present value, profitability index, and internal rate of return calculations). You are considering two independent projects, project A and project B. The initial cash outlay associated with project A is $50,000 and the initial cash outlay associated with project B is $70,000. The required rate of return on both projects is 12 percent. The expected annual free cash flows from each project are as follows: YEAR PROJECT A PROJECT B 0 -$50,000 -$70,000 1 12,000 13,000 2 12,000 13,000 3 12,000 13,000 4 12,000 13,000 5 12,000 13,000 6 12,000 13,000 Calculate the NPV, PI, and IRR for each project and indicate if the project should be accepted.
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 7P
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Net present value , profitability index, andinternal rate of return calculations). You are considering two independent projects, project A and project B. The initial cash outlay associated with project A is $50,000 and the initial cash outlay associated with project B is $70,000. The required rate of return on both projects is 12 percent. The expected annualfree cash flows from each project are as follows:
YEAR |
PROJECT A |
PROJECT B |
0 |
-$50,000 |
-$70,000 |
1 |
12,000 |
13,000 |
2 |
12,000 |
13,000 |
3 |
12,000 |
13,000 |
4 |
12,000 |
13,000 |
5 |
12,000 |
13,000 |
6 |
12,000 |
13,000 |
Calculate the NPV, PI, and IRR for each project and indicate if the project should be accepted.
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