15 Jul Capital Budgeting Homework
The CFO at Rabbit Corporation has asked you to analyze two proposed capital investments, Projects A and B. Each project has a cost of $10,000, and the cost of capital is 12% for each. The projects’ expected net cash flows are as follows:
| Expected Net Cash Flows | ||||||
| Year | Project A | Project B | ||||
| 0 | (10,000) | (10,000) | ||||
| 1 | 6,500 | 3,500 | ||||
| 2 | 3,000 | 3,500 | ||||
| 3 | 3,000 | 3,500 | ||||
| 4 | 1,000 | 3,500 | ||||
- Calculate each project’s payback period.
- Calculate each project’s net present value (NPV).
- Calculate each project’s internal rate of return (IRR).
- Calculate each project’s profitability index (PI).
- Which project or projects should be accepted if they are independent?
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