Following is information about two independent projects that a company is evaluating: Capital Budgeting Technique Project X Project Y Net present value $5,000 $4,950 Internal rate of return 15.5% 17.0% Discounted payback period 5.1 years 4.6 years (a)Which project(s) should be chosen? Explain why. (b)What can be concluded about the companyâs required rate of return, r?

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Nelly StrackeLv2

13 Feb 2019

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Related questions

Year/Project A/ProjectB

1$ (43,500.00)$ (43,500.00)

2 $ 21,400.00 $ 6,400.00

3 $ 18,500.00 $ 14,700.00

4 $ 13,800.00 $ 22,800.00

5 $ 7,600.00 $ 25,200.00

1. Using the above cash flows, calculate the following for each project. Assume a 11% required return a. NPV b. Payback Period c. Discounted Payback Period d. IRR e. MIRR (Combination Approach: Use discount rate given and reinvestment rate of 8%) 2. Assuming independent projects, provide an accept/reject decision for each capital budgeting tool a. Assume payback period criteria is 2.5 years b. Assume discounted payback period criteria is 3 years 3. Assuming mutually exclusive projects, which project should be selected? Why?

ABC is evaluating a new project. You are the manager and need to make a decision: Calculate all four capital budgeting techniques A. Net present value, B. Internal rate of return (IRR), C. Payback period for each of the following projects. D. Profitability Index. The firm requires a rate of return of 14 percent Which project(s) should be purchased if they are independent? Which project(s) should be purchased it they are mutually exclusive? Year Project Alpha Project Beta 0 $(270,000) $(300,000) 1 120,000 0 2 120,000 (80,000) 3 120,000 555,000

(15 Marks) The Mayfair Corporation is deciding to choose any one of the projects out of the following mutually exclusive design projects. The cash flows of both the projects are given below

Year

Particular

Project A

Project B

Cost of Project

(50,000)

(14,000)

Licensing Cost

(15,000)

(10,000)

Cash Inflow

24,000

8,000

Cash Inflow

29,000

14,500

Cash Inflow

36,000

12,800

If the required rate of return is 11% per annum and the Mayfair Corporation applies the Discounted Payback Period technique of capital budgeting then which project should the company accept?
If Mayfair Corporation applies the Payback Period Technique of capital budgeting then which project should the company accept?
Explain the reason(s) for the difference in your answers in (a) & (b).