Capital Budgeting Assignment-2.docx - Capital Budgeting...

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Capital Budgeting Assignment-MBA638Points:Six questions 30Problem #115Problem #230Total75Answer the following questions: (5 points each)1.List and briefly explain the five-step capital budgeting process. Why is it important for you to understand and be able to apply the concepts of the capital budgeting process?2.Describe the process of calculating NPV.3.List two advantages of using NPV.4.What is the relationship between NPV and profitability index (PI)?5.What are the advantages of the PI method of capital budgeting?6.How does the accounting rate of return (ARR) differ from the internal rate of return (IRR)?Complete Problem 1 (15 points):1.The LJB Company must replace a freezer and is trying to decide between two alternatives: Freezer AFreezer BInvestment required$29,000$25,000Annual electric bill$3,000$4,000Salvage value$6,000$5,000Project Life11 years11 yearsThe LJB Company’s cost of capital is 8 percent.Which investment provides LJB with the lowest total cost? Why?(Use present values for your calculations).

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