Use the cash flows from the following two projects to answer the questions 1 thr

Question

Use the cash flows from the following two projects to answer the questions 1 through 7 below. The firms required rate of return is 11%. Make sure to show all your computations.

Year        Project A        Project B

0        -$200,000        -$200,000

1        $80,000        $100,000

2        $80,000        $100,000

3        $80,000        $100,000

4        $80,000        

1.        Assume that the firm’s required rate of return increases to 16%, how would your investment recommendations in change if:

a)        you use the discounted payback criterion?

b)        you use the Net Present Value criterion?

c)        you use the Profitability Index (in times invested funds recovered) criterion?

2.        Assuming the firm’s required rate of return increases to 16% and that your firm only has $200,000 available to invest, which project of the two above would you chose if you used:

a)        the Profitability Index (as percentage of invested funds) as your capital rationing criterion?

b)        the Internal Rate of Return as your capital rationing criterion?

c)        the replacement chain method to evaluate mutually exclusive projects of equal size but different lifespans?

d)        Equivalent Annual Annuities to evaluate mutually exclusive projects of equal size but with different lifespans?

Please show how i would put this in a BA II Plus financial calculator

Explanation / Answer

1) The inputs for Texas BA II Plus for project A are -

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