A company is considering two mutually exclusive investments with a discount rate of 10%. The cash flows of the projects over time follows: Time Project A Project B 0 - RM300,000 - RM405,000 1 - RM387,000 RM134,000 2 - RM193,000 RM134,000 3 - RM100,000 RM134,000 4 RM600,000 RM134,000 5 RM600,000 RM134,000 6 RM850,000 RM134,000 7 - RM180,000 RM0 A. What is the Net Present Value (NPV) for each project? B. Since the projects are mutually exclusive, which project would you recommend? Justify your recommendation. C. Suppose that the projects are independent projects, which project (s) would you recommend? Justify your recommendation.
A company is considering two mutually exclusive investments with a discount rate of 10%. The cash flows of the projects over time follows: Time Project A Project B 0 - RM300,000 - RM405,000 1 - RM387,000 RM134,000 2 - RM193,000 RM134,000 3 - RM100,000 RM134,000 4 RM600,000 RM134,000 5 RM600,000 RM134,000 6 RM850,000 RM134,000 7 - RM180,000 RM0 A. What is the Net Present Value (NPV) for each project? B. Since the projects are mutually exclusive, which project would you recommend? Justify your recommendation. C. Suppose that the projects are independent projects, which project (s) would you recommend? Justify your recommendation.
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 4EB: Assume a company is going to make an investment in a machine of $825,000 and the following are the...
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A company is considering two mutually exclusive investments with a discount rate of 10%.
The
Time | Project A | Project B |
0 | - RM300,000 | - RM405,000 |
1 | - RM387,000 | RM134,000 |
2 | - RM193,000 | RM134,000 |
3 | - RM100,000 | RM134,000 |
4 | RM600,000 | RM134,000 |
5 | RM600,000 | RM134,000 |
6 | RM850,000 | RM134,000 |
7 | - RM180,000 | RM0 |
A. What is the
B. Since the projects are mutually exclusive, which project would you recommend?
Justify your recommendation.
C. Suppose that the projects are independent projects, which project (s) would you
recommend? Justify your recommendation.
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