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A firm is considering 2 capital investment projects. Project A involves an initial cost of $125,0


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A firm is considering 2 capital investment projects. Project A involves an initial cost of $125,000. The discounted present value of all future cash flows is $145,000. Project B requires an initial expenditure of $85,000. The discounted present value of all future cash flows is $102,000.

-Calculate the net present value of each of the 2 projects. Which would be preferred according to the net present value criterion?

  • -Calculate the profitability index of each of the 2 projects. Which would be preferred according to the profitability index criterion?

Given,

 

Project A

 

Discounted present value -125,000

 

$145,000 Project B

 

Discounted present value -85,000

 

$102,000 Net Present Value of A

 

Net Present Value of B

 

Profitability Index:

 

A

 

B $20,000...

 


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A firm is considering 2 capital investment projects. Project A involves an initial cost of $125,0.zip

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This paper was answered on 14-Oct-2020

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