In: Accounting
Provide an evaluation of two proposed projects, both with 5-year expected lives and identical initial outlays of $110,000. Both of thj4ese projects involve additions to Liburdi’s high highly successful hotel product line, and as a result, the required rate of return on both projects has been established at 12 percent. The expected free cash flows from each project are as follows:
Project A |
Project B |
|
Initial outlay |
-$110,000 |
-$110,000 |
Inflow year 1 |
20,000 |
40,000 |
Inflow year 2 |
30,000 |
40,000 |
Inflow year 3 |
40,000 |
40,000 |
Inflow year 4 |
50,000 |
40,000 |
Inflow year 5 |
70,000 |
40,000 |
In evaluating these projects, please respond to the following questions: