Lily Company is considering investing P8,000,000 in a project, for a required return of 9%. The projects that were considered were as follows: Expected Earnings after Year 1 Project A P 2,500,000 3,200,000 4,000,000 2,400,000 1,600,000 Project B 800,000 2,400,000 3,200,000 4,800,000 3,200,000 Required: 1. Calculate the payback period for both prospective projects. 2. Calculate the net present value for both prospective projects. 3. Assuming that the projects are mutually exclusive projects, and the firm has only P10,000,000, which project should the firm push through and why? In answering, a) Describe/define what mutually exclusive projects are. Based on this, how will you decide? b) Use your answers in 1 and 2 above to justify your decision.

Lily Company is considering investing P8,000,000 in a project, for a required return of 9%. The projects that were considered were as follows: Expected Earnings after Year 1 Project A P 2,500,000 3,200,000 4,000,000 2,400,000 1,600,000 Project B 800,000 2,400,000 3,200,000 4,800,000 3,200,000 Required: 1. Calculate the payback period for both prospective projects. 2. Calculate the net present value for both prospective projects. 3. Assuming that the projects are mutually exclusive projects, and the firm has only P10,000,000, which project should the firm push through and why? In answering, a) Describe/define what mutually exclusive projects are. Based on this, how will you decide? b) Use your answers in 1 and 2 above to justify your decision.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...

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