Co. has an investment opportunity costing (initial investment) ($120,000) that is expected to yield the following cash flows over the next ten years: (a negative number means a cash outflow) Year 1: $24,000 Year 2: $27,000 Year 3: $24,000 Year 4: $69,000 Disinvestment payment at Year 4: ($9,000) - This is a negative number a. Find the NPV of the investment at a discount rate of 10%. b. Does this capital project appear to be a favorable investment based on NPV? Why or why Not? c. What is the profitability Index of this project d. If a second project (X) with an initial investment of $50,000 which has a profitability index of 1.85 was also being considered, which project (ETP or X) would be best and why?

Co. has an investment opportunity costing (initial investment) ($120,000) that is expected to yield the following cash flows over the next ten years: (a negative number means a cash outflow) Year 1: $24,000 Year 2: $27,000 Year 3: $24,000 Year 4: $69,000 Disinvestment payment at Year 4: ($9,000) - This is a negative number a. Find the NPV of the investment at a discount rate of 10%. b. Does this capital project appear to be a favorable investment based on NPV? Why or why Not? c. What is the profitability Index of this project d. If a second project (X) with an initial investment of $50,000 which has a profitability index of 1.85 was also being considered, which project (ETP or X) would be best and why?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 13E: Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a...

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