Provide an evaluation of the three proposed projects whose cash flow forecasts were found below: Product A Product B Product C Initial cost $760,000 $650,000 $512,000 Expected life 5 years 5 years 4 years Scrap Value expected $30,000 $35,000 $20,000 Expected cash inflows $ $ $ Year 1 320,000 200,000 200,000 2 300,000 240,000 210,000 3 240,000 210,000 180,000 4 320,000 260,000 160,000 5 180,000 180,000 Since these projects involve additions to Caledonia’s highly successful Avalon product line, the company requires a rate of return on each project equal to 24 percent. The company relies on a number of criteria when evaluating new investment opportunities. The projects are independent.
Provide an evaluation of the three proposed projects whose cash flow forecasts were found below: Product A Product B Product C Initial cost $760,000 $650,000 $512,000 Expected life 5 years 5 years 4 years Scrap Value expected $30,000 $35,000 $20,000 Expected cash inflows $ $ $ Year 1 320,000 200,000 200,000 2 300,000 240,000 210,000 3 240,000 210,000 180,000 4 320,000 260,000 160,000 5 180,000 180,000 Since these projects involve additions to Caledonia’s highly successful Avalon product line, the company requires a rate of return on each project equal to 24 percent. The company relies on a number of criteria when evaluating new investment opportunities. The projects are independent.
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 21P
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Question
Provide an evaluation of the three proposed projects whose cash flow
|
Product A |
Product B |
Product C |
||
|
Initial cost |
$760,000 |
$650,000 |
$512,000 |
|
|
Expected life |
5 years |
5 years |
4 years |
|
|
Scrap Value expected |
$30,000 |
$35,000 |
$20,000 |
|
|
Expected |
$ |
$ |
$ |
|
|
Year |
||||
|
1 |
320,000 |
200,000 |
200,000 |
|
|
2 |
300,000 |
240,000 |
210,000 |
|
|
3 |
240,000 |
210,000 |
180,000 |
|
|
4 |
320,000 |
260,000 |
160,000 |
|
|
5 |
180,000 |
180,000 |
Since these projects involve additions to Caledonia’s highly successful Avalon product line, the company requires a
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