Please show all work: Two investments (A and B, below) have been proposed to the
ID: 2775040 • Letter: P
Question
Please show all work: Two investments (A and B, below) have been proposed to the Capital Investment committee of your organization;
a.The required rate of return for your company is 6%. What is the NPV for each investment?
b.What is the payback period for each investment?
c.Which investment would you recommend and why?
Investment A Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Required Rate of Return Costs: $150,000 $10,000 $10,000 $10,000 $10,000 $10,000 Benefits: $90,000 $55,000 $35,000 $20,000 $20,000 Investment B Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Required Rate of Return Costs: $80,000 Benefits: $- $45,000 $15,000 $10,000 $10,000 $15,000Explanation / Answer
Statemnet showing Cash flows Investment A Investment B Particulars Time PVf@6% Amount PV Amount PV Cash Outflows - 1.00 (150,000.00) (150,000.00) (80,000.00) (80,000.00) PV of Cash outflows (150,000.00) (80,000.00) Cash inflows 1.00 0.9434 80,000.00 75,471.70 45,000.00 42,452.83 Cash inflows 2.00 0.8900 45,000.00 40,049.84 15,000.00 13,349.95 Cash inflows 3.00 0.8396 25,000.00 20,990.48 10,000.00 8,396.19 Cash inflows 4.00 0.7921 10,000.00 7,920.94 10,000.00 7,920.94 Cash inflows 5.00 0.7473 10,000.00 7,472.58 15,000.00 11,208.87 PV of Cash Inflows 151,905.54 83,328.78 NPV 1,905.54 3,328.78 Investment A Investment B Time Cash flows Cumulative Cash Flows Cash Flows Cumulative Cash Flows - (150,000.00) (150,000.00) (80,000.00) (80,000.00) 1.00 80,000.00 (70,000.00) 45,000.00 (35,000.00) 2.00 45,000.00 (25,000.00) 15,000.00 (20,000.00) 3.00 25,000.00 - 10,000.00 (10,000.00) 4.00 10,000.00 10,000.00 10,000.00 - 5.00 10,000.00 20,000.00 15,000.00 15,000.00 Payback period 3 Years 4 Years Investment B is better since higher NPV
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