Assign 11-2 - looks good, the projects are not equally...

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E 12-07 He cannot get 12% with this investment. Item Yrs Amt of Cash Flows 12% present val of cash flows purchase of share now -18000 1 -18000 Annual dividend 1-4 .8*900 3.037 2186.64 selling share 4 22500 0.636 14310 -1503.36 E 12-08 1 2 3 4 investment req -48000 -360000 -270000 -450000 present value of cash inflows at a 10% discount rate 567270 433400 336140 522970 net present value 87270 73400 66140 72970 life of the project 6 12 6 3 project profitability index 1.82 0.20 0.24 0.16 According to PPI, I would rank it as project 1,3,2,4 According to NPV, I would rank it as project 1, 2, 4, 3 I like the project profitability value because although the net present value on a project
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Unformatted text preview: looks good, the projects are not equally desirable if the funds available for investments are limited. We should look at the profitability and see if its worth pursuing. E 12-11 Item Yrs Amt of Cash Flows 20% present val of cash flows cost of equip req now-300000 1-300000 annual cash flows 1-7 80000 3.605 288400 salvage val 7 20000 0.279 5580-6020 Item Yrs Amt of Cash Flows 20% present val of cash flows working cap req now-300000 1-300000 annual cash flows 1-7 60000 3.605 216300-83700 Project A is better than project B because you lose less money....
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This note was uploaded on 10/10/2010 for the course ACCT 225 S taught by Professor Webster during the Spring '10 term at Franklin.

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