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Capital Budgeting techniques

Note the following information on the annual cash flows of two mutually exclusive projects under consideration by Wang Food Markets, Inc.

Year A B
0 $-30,000 $-60,000
1 10,000 20,000
2 10,000 20,000
3 10,000 20,000
4 10,000 20,000
5 10,000 20,000

Wang requires a 14 percent rate of return on projects of this nature.

a. Compute the NPV of both projects
b. Compute the internal rate of return on both projects
c. Compute the profitability index of both projects
d. Compute the payback period on both projects
e. Which of the two projects, if either, should Wang accept? Why?

Solution Preview

Note the following information on the annual cash flows of two mutually exclusive projects under consideration by Wang Food Markets, Inc.

Year A B
0 ...

Solution Summary

Response tell about steps to evaluate project under Capital Budgeting decision such as NPV, Internal rate of return, payback, profitability index

$2.19