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    Create a Capital Budgeting Problem

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    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    This question required that a capital budgeting question to be created and a solution provided for it. The question involved a long-term project that a company is considering investing in. The solution uses two capital budgeting methods, the Payback period method and the Net Present Value method, to come to a decision about whether the firm should invest in the project.

    PAYBACK PERIOD METHOD AND NET PRESENT VALUE METHODS OF CAPITAL BUDGETING DEMONSTRATED

    © BrainMass Inc. brainmass.com October 5, 2022, 2:34 am ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/create-capital-budgeting-problem-522239

    SOLUTION This solution is FREE courtesy of BrainMass!

    THE PROBLEM:

    A company whose cost of capital is 10% is considering investment in two projects. The cash flow for each project is as follows:

    Project A

    Initial Cash outflow $100,000
    Cash Inflow:
    Year 1 - $50,000
    Year 2 - $40,000
    Year 3 - $30,000

    Project B

    Initial Cash Outflow - $100,000
    Cash Inflow:
    Year 1 - $30,000
    Year 2 - $40,000
    Year 3 - $50,000

    Required:
    Determine which project is better for the firm using:
    a. The payback period method
    b. The net present value method

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com October 5, 2022, 2:34 am ad1c9bdddf>
    https://brainmass.com/business/capital-budgeting/create-capital-budgeting-problem-522239

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