Project A has the following information: Year 0 1 2 3 4 5 Initial investment outlay 125,000 Cash inflows 75,000 80,000 95,000 95,000 86,250 Personnel expenses 22,500 22,500 22,500 22,500 22,500 Material expesnes 15,000 20,000 22,500 22,500 22,500 Maintenance expenses 2,500 2,500 5,000 8,750 10,000 Other cash outflows 3,750 3,750 3,750 5,000 5,625 Liquidation value 12,500 Project B has the following information: Year 0 1 2 3 4 5 Initial investment outlay 225,000 Cash inflows 155,000 140,000 108,750 93,750 125,000 Personnel expenses 27,500 27,500 27,500 27,500 27,500 Material expenses 25,000 22,500 22,500 22,500 24,000 Maintenance expesnses 8,750 11,250 17,500 15,000 14,000 Other cash outflows 6,250 3,750 3,750 3,750 4,000 Liquidation value 15,000 The Discount Rate is 8% Assess the relative profitability of the two options using the following methods: (i) The Annuity Method (ii) The Net Present Value Method (iii) The Internal Rate of Return Method
Project A has the following information: Year 0 1 2 3 4 5 Initial investment outlay 125,000 Cash inflows 75,000 80,000 95,000 95,000 86,250 Personnel expenses 22,500 22,500 22,500 22,500 22,500 Material expesnes 15,000 20,000 22,500 22,500 22,500 Maintenance expenses 2,500 2,500 5,000 8,750 10,000 Other cash outflows 3,750 3,750 3,750 5,000 5,625 Liquidation value 12,500 Project B has the following information: Year 0 1 2 3 4 5 Initial investment outlay 225,000 Cash inflows 155,000 140,000 108,750 93,750 125,000 Personnel expenses 27,500 27,500 27,500 27,500 27,500 Material expenses 25,000 22,500 22,500 22,500 24,000 Maintenance expesnses 8,750 11,250 17,500 15,000 14,000 Other cash outflows 6,250 3,750 3,750 3,750 4,000 Liquidation value 15,000 The Discount Rate is 8% Assess the relative profitability of the two options using the following methods: (i) The Annuity Method (ii) The Net Present Value Method (iii) The Internal Rate of Return Method
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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Project A has the following information:
| Year | 0 | 1 | 2 | 3 | 4 | 5 |
| Initial investment outlay | 125,000 | |||||
| 75,000 | 80,000 | 95,000 | 95,000 | 86,250 | ||
| Personnel expenses | 22,500 | 22,500 | 22,500 | 22,500 | 22,500 | |
| Material expesnes | 15,000 | 20,000 | 22,500 | 22,500 | 22,500 | |
| Maintenance expenses | 2,500 | 2,500 | 5,000 | 8,750 | 10,000 | |
| Other |
3,750 | 3,750 | 3,750 | 5,000 | 5,625 | |
| Liquidation value | 12,500 |
Project B has the following information:
| Year | 0 | 1 | 2 | 3 | 4 | 5 |
| Initial investment outlay | 225,000 | |||||
| Cash inflows | 155,000 | 140,000 | 108,750 | 93,750 | 125,000 | |
| Personnel expenses | 27,500 | 27,500 | 27,500 | 27,500 | 27,500 | |
| Material expenses | 25,000 | 22,500 | 22,500 | 22,500 | 24,000 | |
| Maintenance expesnses | 8,750 | 11,250 | 17,500 | 15,000 | 14,000 | |
| Other cash outflows | 6,250 | 3,750 | 3,750 | 3,750 | 4,000 | |
| Liquidation value | 15,000 |
The Discount Rate is 8%
Assess the relative profitability of the two options using the following methods:
(i) The
(ii) The
(iii) The
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