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The Pinkerton Publishing Co. is considering two mutually exclusive expansion plans. Plan A calls for the...

The Pinkerton Publishing Co. is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of $50 million on a large-scale, integrated plant that will provide an expected cash flow stream of $8 million per year for 20 years. Plan B calls for the expenditure of $15 million to build a somewhat less efficient, more labor-intensive plant that has an expected cash flow stream of $3.4 million per year for 20 years. The cost of capital is 10%.

a. Calculate each project’s NPV, IRR, and Profitability Index.

b. Why do you find differences in rankings across these methods?

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jeff jeffy answered 2 years ago
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