Question 1 You recently went to work for Ndejiku Company, a supplier of auto repair parts used in the after-market with products from Daimler, Chrysler, Ford, and other automakers. Your boss, the chief financial officer (CFO), has just handed you the estimated cash flows for two proposed projects. Project X involves adding a new item to the firm’s ignition system line. Project Y involves an add-on to an existing line, and its cash flows would decrease over time. Both projects have 4-year lives. Here are the projects’ net cash flows (in thousands of kwachas): Year 0 1 2 3 4 Project X -110,000 10,000 60,000 80,000 90,000 Project Y -110,000 90,000 60,000 30,000 10,000 If Ndejiku’s cost of capital is 10%. Advise whether one or both of the projects should be accepted using: Payback period method if Projects are mutually exclusive Projects are Independent of each other Net Present Value (NPV) if projects are independent of each other

Question 1 You recently went to work for Ndejiku Company, a supplier of auto repair parts used in the after-market with products from Daimler, Chrysler, Ford, and other automakers. Your boss, the chief financial officer (CFO), has just handed you the estimated cash flows for two proposed projects. Project X involves adding a new item to the firm’s ignition system line. Project Y involves an add-on to an existing line, and its cash flows would decrease over time. Both projects have 4-year lives. Here are the projects’ net cash flows (in thousands of kwachas): Year 0 1 2 3 4 Project X -110,000 10,000 60,000 80,000 90,000 Project Y -110,000 90,000 60,000 30,000 10,000 If Ndejiku’s cost of capital is 10%. Advise whether one or both of the projects should be accepted using: Payback period method if Projects are mutually exclusive Projects are Independent of each other Net Present Value (NPV) if projects are independent of each other

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter15: Harvesting The Business Venture Investment

Section: Chapter Questions

Problem 1bM

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