Below is the schedule of cash flows for Investment PEK and Investment PVG. Using the NPV, and IRR as criteria, which between Investment PEK and Investment PVG will you choose? Which is the best decision criterion? Justify your answer. Note that your capital outlay for Investment PEK is RMB 85,000.00 and your capital outlay for Investment PVG is also RMP 85,000.00. Assume that the interest rate is 10%. How will your answer in (1) change if the interest rate increases by 5%? How will your answer in (1) change if the interest rate decreases by 5%? Comment on the impact of changing the interest rate on your NPV and IRR. Year Year-end Cash Flow PEK PVG 1 30,000.00 50,000.00 2 30,000.00 20,000.00 3 30,000.00 24,000.00 4 30,000.00 26,000.00 5 30,000.00 18,000.00

Below is the schedule of cash flows for Investment PEK and Investment PVG. Using the NPV, and IRR as criteria, which between Investment PEK and Investment PVG will you choose? Which is the best decision criterion? Justify your answer. Note that your capital outlay for Investment PEK is RMB 85,000.00 and your capital outlay for Investment PVG is also RMP 85,000.00. Assume that the interest rate is 10%. How will your answer in (1) change if the interest rate increases by 5%? How will your answer in (1) change if the interest rate decreases by 5%? Comment on the impact of changing the interest rate on your NPV and IRR. Year Year-end Cash Flow PEK PVG 1 30,000.00 50,000.00 2 30,000.00 20,000.00 3 30,000.00 24,000.00 4 30,000.00 26,000.00 5 30,000.00 18,000.00

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 13P

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Below is the schedule of cash flows for Investment PEK and Investment PVG. 1. Using the NPV, and IRR as criteria, which between Investment PEK and Investment PVG will you choose? Which is the best decision criterion? Justify your answer. Note that your capital outlay for Investment PEK is RMB 85,000.00 and your capital outlay for Investment PVG is also RMP 85,000.00. Assume that the interest rate is 10%. 2. How will your answer in (1) change if the interest rate increases by 5%? 3. How will your answer in (1) change if the interest rate decreases by 5%? 4. Comment on the impact of changing the interest rate on your NPV and IRR. Year-end Cash Flow Year PEK PVG 1 30,000.00 50,000.00 2 30,000.00 20,000.00 30,000.00 24,000.00 4 30,000.00 26,000.00 5 30,000.00 18,000.00
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