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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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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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