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The following two mutually-exclusive business opportunities are currently under consideration by your firm, The Sharper Investor.

The following two mutually-exclusive business opportunities are currently under consideration by your firm, The Sharper Investor. The accounting department has forecasted pro forma cash flows for both projects according to the following table:  (each project is to be funded to require a discount rate of 15%)


    Year        Cash Flow (A)       Cash Flow (B)   _

     0          -$525,000           -$60,000

     1             30,000             30,000

     2             75,000             15,000

     3             75,000              9,000

     4          1,125,000              3,000


1. Discounted payback of Project A (above) equals:


  a. 3.61 years b. 3.31 years c. 4.0 years d. 3.47 years


2. What is Project A's Internal Rate of Return (SHOW ALL WORK)?


  a. 28.37% b. 27.49% c. 27.94% d. 29.13% e. 26.99%


3. The Profitability Index for Project B equals?

  

  a. -$14,938 b. .9500 c. 1.3316 d. .7510 e. .8854


What is the crossover rate between projects A and B?

(place answer here:____________ SHOW WORK on scratch sheet)

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1 comment
  • hello, for the profitability index please make a few adjustments. it is PV of future cashflows/ initial investment = $45062/$60000 = 0.7510
    • ProfPeter00
    • Apr 04, 2018 at 9:25pm

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