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Q- 2 You are a financial analyst for the Hittle Company. The director of capital budgeting...
Q- 2
You are a financial analyst for the Hittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12%. The projects’ expected net cash flows are as follows:
|
Year |
Project X |
Project Y |
|
0 |
−$ 10,000 |
−$10,000 |
|
1 |
$ 6,500 |
$ 35,00 |
|
2 |
$ 3000 |
$ 35,00 |
|
3 |
$ 3000 |
$ 35,00 |
|
4 |
$ 1000 |
$ 35,00 |
|
Year |
Project X |
Project Y |
|
0 |
−$ 10,000 |
−$10,000 |
|
1 |
$ 6,500 |
$ 35,00 |
|
2 |
$ 3000 |
$ 35,00 |
|
3 |
$ 3000 |
$ 35,00 |
|
4 |
$ 1000 |
$ 35,00 |
Calculate each project’s payback period, net present value (NPV), and profitability index (PI).
Solutions
jeff jeffy answered 2 years agoRelated Solutions
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You are a financial analyst for the Hittle Company. The director of capital budgeting has asked...
You are a financial analyst for the Hittle Company. The director
of capital budgeting
has asked you to analyze two proposed capital investments, Projects
X and Y. Each
project has a cost of $10,000, and the cost of capital for each is
12%. The projects’
expected net cash flows are as follows:
Expected Net Cash Flows
Year Project X Project Y
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1 6,500 3,500
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10,000. Company discount all projects based on WACC. Further, all
the projects are equally risky projects and the company uses only
debt and common equity for financing these projects. It can borrow
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5
As director of capital budgeting, you are reviewing three
potential investment projects with the following cost and cash flow
projections.
Cash Flow
Project A
Project B
Project C
Investment Cost
($500,000)
($375,000)
($475,000)
Year One Cash Flow
$200,000
$175,000
$250,000
Year Two Cash Flow
$180,000
$50,000
$200,000
Year Three Cash Flow
$100,000
$50,000
$75,000
Year Four Cash Flow
$80,000
$50,000
$30,000
Year Five Cash Flow
$140,000
$300,000
$30,000
Calculate the...
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of the following is true regarding the net present value of the
project?
A. The NPV of the project is
positive
B. The NPV of the project is zero
C. The NPV of the project is
negative
D. More information is needed to
answer the question...
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