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In: Accounting
Provide an evaluation of two proposed projects, both with 5-year expected lives and identical initial outlays...
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:
- What are the criticisms of the payback period?
- Describe in your own words the logic behind the NPV?
- Would you expect the NPV and PI methods to give consistent accept/reject decisions? Why or Why not?
Solutions
ekkarill92 answered 2 years agoRelated Solutions
Provide an evaluation of two proposed projects, both with 5-year expected lives and identical initial outlays...
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...
Consider two mutually exclusive projects X and Y with identical initial outlays of $500,000 and useful...
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year. Project Y is expected to generate a single after-tax net cash
flow of $1,015,000 in year 5. The discount rate is 15 percent.
Calculate the net present value for each project.
Calculate the IRR for each project.
What decision should you make regarding these projects?
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exclusive projects. Both projects require an initial investment of
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A has an expected life of 2 years with after-tax cash inflows of
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