Barbie Holdings is planning to do an investment of $500,000 in one of the two alternatives projects which located in Auckland. The company’s capital cost is 15% and expected cash flow from both projects are as follows Project A Year 1 = $120,000 Year 2 = $100,000 Year 3 = $130,000 Year 4 = $150,000 Year 5 = $180,000 Project B Year 1 = $150,000 Year 2 = $150,000 Year 3 = $150,000 Year 4 = $150,000 Year 5 = $150,000 Requirements a) calculate i) payback period both projects ii) Net present value both projects iii) internal rate of return for project B b) According to above answer, which project should be selected and why.
Barbie Holdings is planning to do an investment of $500,000 in one of the two alternatives projects which located in Auckland. The company’s capital cost is 15% and expected cash flow from both projects are as follows Project A Year 1 = $120,000 Year 2 = $100,000 Year 3 = $130,000 Year 4 = $150,000 Year 5 = $180,000 Project B Year 1 = $150,000 Year 2 = $150,000 Year 3 = $150,000 Year 4 = $150,000 Year 5 = $150,000 Requirements a) calculate i) payback period both projects ii) Net present value both projects iii) internal rate of return for project B b) According to above answer, which project should be selected and why.
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...
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Barbie Holdings is planning to do an investment of $500,000 in one of the two alternatives projects which located in Auckland. The company’s capital cost is 15% and expected cash flow from both projects are as follows
Project A
Year 1 = $120,000
Year 2 = $100,000
Year 3 = $130,000
Year 4 = $150,000
Year 5 = $180,000
Project B
Year 1 = $150,000
Year 2 = $150,000
Year 3 = $150,000
Year 4 = $150,000
Year 5 = $150,000
Requirements
a) calculate
i) payback period both projects
ii) Net present value both projects
iii) internal rate of return for project B
b) According to above answer, which project should be selected and why.
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