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Screening Capital Projects

Dear Vineet Swarup,

The attached file contains 2 problems/questions. I computed the second problem but I am not sure if this is correct, therefore please check it and in case of any mistakes, provide the correct solution.
Also, please help me with the number one question.

Thank you in advance

1. Share with us either your companies benchmarks for screening capital projects or research benchmarks for another organization. Also, how were these benchmarks established or approved?

2. A company has $15,000 to invest. This company is deciding between two alternatives, details as follows:
Project A Project B

Investment Required $15,000 $15,000

Annual Cash Flows $4,000 $ 0

Single Cash Flow @ End of 10 yrs $ 0 $60,000

Life of Project 10 yrs 10 yrs

If this company uses a 16% discount rate, which investment would you recommend the company accept? (Base your decision on their NPV's and show your calculations).

Attachments

Solution Preview

Please see the attached file. Let me know if you have any questions.

1. Share with us either your companies benchmarks for screening capital projects or research benchmarks for another organization. Also, how were these benchmarks established or approved?

In my company we use two types of benchmarks - one for screening the projects and one for accepting or rejecting the projects. Projects which pass the screening benchmark are then subjected to the acceptance/rejection of the project.
I work for an IT hardware company. In my organization, since the technology changes fast, we use payback method as a screening tool. Looking at the way the technology changes, we have set up the payback ...

Solution Summary

The solution explains the benchmarks used in screening capital projects and the calculation of NPV for the given projects

$2.19