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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
Problem 1PS
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The treasurer of Banila co. has projected the cash flows of Project A, B, and C as follows: Year Project A Project C -$405,000 -$405,000 297,000 324,000 297,000 243,000 1 2 3 Project B -$810,000 540,000 540,000 Suppose the relevant discount rate is 12% per year. i. Suppose these three projects are mutually exclusive. Which project(s) should Banila Co. accept based on the profitability index rule? Consider also the incremental cash flows of the project when the scales of the projects are different. v. Suppose the company's budget for these projects is $810,000. The projects are not divisible. Which project(s) should Banila Co. accept?
Transcribed Image Text:The treasurer of Banila co. has projected the cash flows of Project A, B, and C as follows: Year Project A Project C -$405,000 -$405,000 297,000 324,000 297,000 243,000 1 2 3 Project B -$810,000 540,000 540,000 Suppose the relevant discount rate is 12% per year. i. Suppose these three projects are mutually exclusive. Which project(s) should Banila Co. accept based on the profitability index rule? Consider also the incremental cash flows of the project when the scales of the projects are different. v. Suppose the company's budget for these projects is $810,000. The projects are not divisible. Which project(s) should Banila Co. accept?
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