Measures of Project Evaluation
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The Bingo Corporation is in the process of determining which of the following two projects they should invest in the details are below
PROJECT A B
COST OF CAPITAL 12% 12%
LIFE OF PROJECT 20 YEARS 20 YEARS
ANNUAL CASH FLOW $350,000 $400,000
INITIAL COST $1,250,000 $1,400,000
SALVAGE VALUE $250,000 $110,000
QUESTION
A. What is the payback period
B. What is the NPV of the two projects
C. What is the IRR of the two projects
D. What is the profitability index
E. Which of the two projects will you choose and which criteria would you use
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Solution Summary
Using an Excel spreadsheet, this solution illustrates the computation of the net present value, internal rate of return, and payback period on alternative projects.
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