Delta Limited has two possible investment alternatives and seeks your help to select the best option
Delta Limited has two possible investment alternatives and seeks your help to select the best option for them to choose. The table below gives you the initial investment and the expected future cashflows over a 4 year period.
The required rate of return is 12%
Year Project A Project B
0 -95,200 -162,000
1 47,800 68,000
2 37,200 65,600
3 41,400 61,000
4 29,200 54,600
a. Calculate the profitability index for each project. (4 Marks)
b. Calculate the the Net Present Value (NPV) for each project (4 Marks)
c. Which project should be selected based on your calculations? Explain your answer. (30 – 40 words) (2 Marks)
The required rate of return is 12%
Year Project A Project B
0 -95,200 -162,000
1 47,800 68,000
2 37,200 65,600
3 41,400 61,000
4 29,200 54,600
a. Calculate the profitability index for each project. (4 Marks)
b. Calculate the the Net Present Value (NPV) for each project (4 Marks)
c. Which project should be selected based on your calculations? Explain your answer. (30 – 40 words) (2 Marks)
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