Question
In: Accounting
A&B Enterprises is trying to select the best investment from among three alternatives. Each alternative involves...
A&B Enterprises is trying to select the best investment
from among three alternatives. Each alternative involves an initial
outlay of $100,000. The company’s cost of capital is 10%. The
incremental after tax cash inflows for each project are as
follows:
Year A B C
1 20,000$50,000$25,000
2 20,000 40,000 25,000
3 20,000 30,000 25,000
4 30,000 0 25,000
5 60,000 0 25,000
a) Payback
i) Calculate the payback period (1 decimal) for each project
.
ii) Evaluate and rank each alternative (i.e. 1st, 2nd, 3rd)
based on payback period. What are the 2 main drawbacks of the
payback method?
b) Net Present Value (NPV)
i) Calculate the NPV for each project
ii) Evaluate and rank each alternative (i.e. 1st, 2nd, 3rd)
based on the net present value. Are there any projects you would
not recommend? Why?
c) Profitability Index (PI)
i) Calculate the PI ( 3 decimals) for each project
ii) Evaluate and rank each alternative (i.e. 1st, 2nd, 3rd)
based on the PI. Why are the rankings for PI the same (or
different) as NPV in this case?
Solutions
ekkarill92 answered 2 years agoRelated Solutions
Henry is trying to select the best investment from among 3 alternatives. Each alternative involves an...
Henry is trying to select the best investment from among 3
alternatives. Each alternative involves an initial outlay of
200,000$. Their cash flows returns for each project are as follows
(in $):
year project
A project B
project C
1
110,000
150,000
0
2
120,000
140,000
0
3
130,000
130,000
145,000
4
140,000 0
155,000
5
150,000 0
160,000
a) Evaluate and rank each alternative
based...
A & B Enterprises is trying to select the best investment from among two alternatives. Each...
A & B Enterprises is trying to select the best investment
from among two alternatives. Each alternative involves an initial
outlay of $100,000. Their cash flows follow:
YEAR A
B
130,000 0
230,000 25,000
330,000 35,000
430,000 45,000
530,000 50,000
Evaluate and rank each alternative based on
a.payback period
b.net present value (use a 10% discount rate) and
c.internal rate of return.
A & B Enterprises is trying to select the best investment from among two alternatives. Each...
A & B Enterprises is trying to select the best investment
from among two alternatives. Each alternative involves an initial
outlay of $100,000. Their cash flows follow:
YEAR
A
B
1
30,000
0
2
30,000
25,000
3
30,000
35,000
4
30,000
45,000
5
30,000
50,000
Evaluate and rank each alternative based on
a. payback period
b. net present value (use a 10% discount
rate) and
c. ...
Medical Technology Enterprises is trying to select the best investment from among four alternatives. Each alternative...
Medical Technology Enterprises is trying to select the best
investment from among four alternatives. Each alternative involves
an initial outlay of $100,000. and the company’s cost of capital
(WACC) is 8%. Their future cash flows follow:
Evaluate and rank each alternative based on payback period, net
present value, and internal rate of return.
Year
Alternative A ($)
Alternative B (S)
Alternative C ($)
1
10,000
50,000
25,000
2
20,000
40,000
25,000
3
30,000
30,000
25,000
4
40,000
0
25,000
5...
Computer Technology Enterprises is trying to select the best investment from among four alternatives. The company’s...
Computer Technology Enterprises is trying to select the best
investment from among four alternatives. The company’s required
rate of return is 14%. The initial cost and future cash
flows of the alternatives are presented below. You
can use Excel to solve this problem. If you do, please submit your
homework document and the Excel file.
Year
Alternative A ($)
Alternative B (S)
Alternative C ($)
Alternative D ($)
0
-200,000
-200,000
-200,000
-200,000
1
70,000
0
60,000
90,000
2
80,000...
Medical Technology Enterprises is trying to select the best investment from among four alternatives. The company’s...
Medical Technology Enterprises is trying to select the best
investment from among four alternatives. The company’s cost of
capital (WACC) is 12%. The initial cost and future cash flows of
the alternatives are presented below (See pages 383 – 390). You can
use Excel to solve this problem. If you do, please submit your
homework document and the Excel file.
Year
Alternative A ($)
Alternative B (S)
Alternative C ($)
Alternative D ($)
0
-400,000
-400,000
-400,000
-400,000
1
1400,000...
Medical Technology Enterprises is trying to select the best investment from among four alternatives. The company’s...
Medical Technology Enterprises is trying to select the best
investment from among four alternatives. The company’s cost
ofcapital (CCC) is 14%. The initial cost and future cash
flows of the alternatives are presented below. You
can use Excel to solve this problem. If you do, please submit
provide formulas used.
Year
Alternative A ($)
Alternative B (S)
Alternative C ($)
Alternative D ($)
0
-200,000
-200,000
-200,000
-200,000
1
70,000
0
60,000
90,000
2
80,000
0
60,000
100,000
3
70,000...
Medical Technology Enterprises is trying to select the best investment from among four alternatives. The company’s...
Medical Technology Enterprises is trying to select the best
investment from among four alternatives. The company’s cost of
capital (CCC) is 14%. The initial cost and future cash
flows of the alternatives are presented below.
Year
Alternative A ($)
Alternative B (S)
Alternative C ($)
Alternative D ($)
0
-200,000
-200,000
-200,000
-200,000
1
70,000
0
60,000
90,000
2
80,000
0
60,000
100,000
3
70,000
90,000
60,000
100,000
4
40,000
100,000
60,000
0
5
30,000
100,000
60,000
0
(If...
Problem 1 Medical Technology Enterprises is trying to select the best investment from among four alternatives....
Problem 1
Medical Technology Enterprises is trying to select the best
investment from among four alternatives. The company’s cost
ofcapital (CCC) is 14%. The initial cost and future cash
flows of the alternatives are presented below(See
pages 383 – 390). You can use Excel to solve this problem. If you
do, please submit your homework document and the Excel
file.
Year
Alternative A ($)
Alternative B (S)
Alternative C ($)
Alternative D ($)
0
-200,000
-200,000
-200,000
-200,000
1...
B&E Incorporated is trying to select the best alternative from two options. Each alternative has an...
B&E Incorporated is trying to select the best alternative
from two options. Each alternative has an initial cash outlay of
$100,000. The cash flows for the alternatives are as follows:
Year
Investment A
Investment B
1
$ 10,000
$ 50,000
2
20,000
40,000
3
30,000
30,000
4
5
40,000
150,000
0
0
For each alternative investments, compute the Payback Method and
select the best investment (using the Payback Method Results).
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