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    Cash flows and project comparisons

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    You work for the 3T company, which expects to earn at least 18% on its investments. You have to choose between two similar projects. Below is the cash information for each project. Your analysts predict that the inflation rate will be a stable 3% over the next seven years. Which of the two projects would you fund if the decision is based solely on financial information? Why?

    Omega Inflow Outflow Netflow
    Year

    Y0 $0 $225,000 -$225,000

    Y1 $0 $190,000 -$190,000

    Y2 $150,000 $0 $150,000

    Y3 $220,000 $30,000 $190,000

    Y4 $215,000 $0 $215,000

    Y5 $205,000 $30,000 $175,000

    Y6 $197,000 $0 $197,000

    Y7 $100,000 $30,000 $70,000

    Total $1,087,000 $505,000 $582,000

    Alpha Inflow Outflow Netflow
    Year

    Y0 $0 $300,000 -$300,000

    Y1 $50,000 $100,000 -$50,000

    Y2 $150,000 $0 $150,000

    Y3 $250,000 $50,000 $200,000

    Y4 $250,000 $0 $250,000

    Y5 $200,000 $50,000 $150,000

    Y6 $180,000 $0 $180,000

    Y7 $120,000 $30,000 $90,000

    Total $1,200,000 $530,000 $670,000

    © BrainMass Inc. brainmass.com June 3, 2020, 10:43 pm ad1c9bdddf
    https://brainmass.com/business/discounted-cash-flows-model/cash-flows-and-project-comparisons-246297

    Solution Summary

    The solution explains how to determine which project should be taken up for funding

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