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1. A manufacturing company wants to expand its product line. There are two investment projects which could help the company achieve its aim. The data for each investment project is shown below. Data for the investment projects A and B Project A Year Initial investment outlay Cash inflows Personnel expenses Material expenses Maintenance expenses Other cash outflows Liquidation value 1 2. 3 4 125,000 75,000 22,500 15,000 2,500 3,750 80,000 22,500 20,000 2,500 3,750 95,000 22,500 22,500 5,000 3,750 95,000 22,500 22,500 8,750 5,000 86,250 22,500 22,500 10,000 5,625 12,500 Project B 0. 225,000 Year Initial investment outlay Cash inflows Personnel expenses Material expenses Maintenance expenses 3. 4 155,000 140,000 27,500 27,500 25,000 22,500 11,250 8,750 6,250 3,750 108,750 93,750 125,000 27,500 24,000 14,000 4,000 15,000 27,500 27,500 22,500 22,500 17,500 15,000 Other cash outflows 3,750 3,750 Liquidation value The Discount Rate is 8% Assess the relative profitability of the two options using the following methods: (i) (ii) (iii) a. The Annuity Method The Net Present Value Method The Internal Rate of Return Method

1. A manufacturing company wants to expand its product line. There are two investment projects which could help the company achieve its aim. The data for each investment project is shown below. Data for the investment projects A and B Project A Year Initial investment outlay Cash inflows Personnel expenses Material expenses Maintenance expenses Other cash outflows Liquidation value 1 2. 3 4 125,000 75,000 22,500 15,000 2,500 3,750 80,000 22,500 20,000 2,500 3,750 95,000 22,500 22,500 5,000 3,750 95,000 22,500 22,500 8,750 5,000 86,250 22,500 22,500 10,000 5,625 12,500 Project B 0. 225,000 Year Initial investment outlay Cash inflows Personnel expenses Material expenses Maintenance expenses 3. 4 155,000 140,000 27,500 27,500 25,000 22,500 11,250 8,750 6,250 3,750 108,750 93,750 125,000 27,500 24,000 14,000 4,000 15,000 27,500 27,500 22,500 22,500 17,500 15,000 Other cash outflows 3,750 3,750 Liquidation value The Discount Rate is 8% Assess the relative profitability of the two options using the following methods: (i) (ii) (iii) a. The Annuity Method The Net Present Value Method The Internal Rate of Return Method

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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1. A manufacturing company wants to expand its product line. There are two investment projects which could help the company achieve its aim. The data for each investment project is shown below. Data for the investment projects A and B Project A Year Initial investment outlay Cash inflows Personnel expenses Material expenses Maintenance expenses 0. 1 3 125,000 75,000 22,500 15,000 2,500 3,750 80,000 22,500 20,000 2,500 3,750 95,000 22,500 22,500 5,000 3,750 95,000 22,500 22,500 8,750 5,000 86,250 22,500 22,500 10,000 5,625 12,500 Other cash outflows Liquidation value Project B Year Initial investment outlay Cash inflows Personnel expenses Material expenses Maintenance expenses 2. 3. 4 225,000 155,000 140,000 27,500 27,500 22,500 25,000 8,750 11,250 108,750 93,750 27,500 27,500 22,500 22,500 15,000 17,500 3,750 3,750 125,000 27,500 24,000 14,000 4,000 15,000 Other cash outflows 6,250 3,750 Liquidation value The Discount Rate is 8% a. Assess the relative profitability of the two options using the following methods: (i) (ii) The Annuity Method The Net Present Value Method (iii) The Internal Rate of Return Method
Transcribed Image Text:1. A manufacturing company wants to expand its product line. There are two investment projects which could help the company achieve its aim. The data for each investment project is shown below. Data for the investment projects A and B Project A Year Initial investment outlay Cash inflows Personnel expenses Material expenses Maintenance expenses 0. 1 3 125,000 75,000 22,500 15,000 2,500 3,750 80,000 22,500 20,000 2,500 3,750 95,000 22,500 22,500 5,000 3,750 95,000 22,500 22,500 8,750 5,000 86,250 22,500 22,500 10,000 5,625 12,500 Other cash outflows Liquidation value Project B Year Initial investment outlay Cash inflows Personnel expenses Material expenses Maintenance expenses 2. 3. 4 225,000 155,000 140,000 27,500 27,500 22,500 25,000 8,750 11,250 108,750 93,750 27,500 27,500 22,500 22,500 15,000 17,500 3,750 3,750 125,000 27,500 24,000 14,000 4,000 15,000 Other cash outflows 6,250 3,750 Liquidation value The Discount Rate is 8% a. Assess the relative profitability of the two options using the following methods: (i) (ii) The Annuity Method The Net Present Value Method (iii) The Internal Rate of Return Method
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