Dragon Products Company is considering two projects. The projects’ cash flows are as follows: EXPECTED NET CASH FLOWS YEAR PROJECT A PROJECT B 0 ($10300) (12,500) 1 1700 2870 2 1930 2450 3 2500 4700 4 2800 4575 5 4200 3450 Discount Rate for both pojects = 6.8% REQUIRED 1. Find the Payback Period [PBP] of both projects 2. What is the Discounted PBP of both projects ? 3. Calculate the Net Present Value of the two projects and decide which one is better? 4. What is the profitability index of both products ? What is the function of PI in project selection? 5. What are the IRR of the projects ? Which of the projects is the best using IRR as a criteria? Why? 6. Why is sunk cost not considered when deciding about selecting a project? Which cost is considered and why?
Dragon Products Company is considering two projects. The
projects’ cash flows are as follows:
EXPECTED NET CASH
FLOWS
YEAR PROJECT A PROJECT B
0 ($10300) (12,500)
1 1700 2870
2 1930 2450
3 2500 4700
4 2800 4575
5 4200 3450
Discount Rate for both pojects = 6.8%
REQUIRED
1. Find the Payback Period [PBP] of both projects
2. What is the Discounted PBP of both projects ?
3. Calculate the
and decide which one is better?
4. What is the profitability index of both products ?
What is the function of PI in project selection?
5. What are the
projects is the best using IRR as a criteria? Why?
6. Why is sunk cost not considered when deciding
about selecting a project? Which cost is considered
and why?
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