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Evaluate the projects using each of the following criteria, stating which project(s) Insignia Corporation Limited should choose under each criteria and why: Payback Discounted Payback Net Present Value Profitability Index

Evaluate the projects using each of the following criteria, stating which project(s) Insignia Corporation Limited should choose under each criteria and why: Payback Discounted Payback Net Present Value Profitability Index

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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(a)Evaluate the projects using each of the following criteria, stating which project(s) Insignia Corporation Limited should choose under each criteria and why:

  • Payback
  • Discounted Payback
  • Net Present Value
  • Profitability Index
Despite the Weighted Average Cost of Capital calculated in question 3, Insignia anticipates its cost of capital will increase in the coming months and has thus decided to use a minimum required return of 12% for the following capital budgeting evaluation scenario: The company is considering whether to upgrade its fleet of delivery vehicles or to purchase a new piece of equipment which will improve operations. You have been tasked with evaluating the quantitative aspects of the projects, which are mutually exclusive. The projected cash flows of both projects are as follows: Project Years Upgrade Vehicles Purchase Equipment (6250,000) 2500,000 2500,000 1500,000 1000,000 (10000,000) 4000,000 3500,000 3250,000 3000,000 1 3 4 As noted above, the company has a required rate of return of 12%. The following PV factors are provided: PV Factor Year (12%) 0.8929 1 2 0.7972 3 0.7118 4 0.6355
Transcribed Image Text:Despite the Weighted Average Cost of Capital calculated in question 3, Insignia anticipates its cost of capital will increase in the coming months and has thus decided to use a minimum required return of 12% for the following capital budgeting evaluation scenario: The company is considering whether to upgrade its fleet of delivery vehicles or to purchase a new piece of equipment which will improve operations. You have been tasked with evaluating the quantitative aspects of the projects, which are mutually exclusive. The projected cash flows of both projects are as follows: Project Years Upgrade Vehicles Purchase Equipment (6250,000) 2500,000 2500,000 1500,000 1000,000 (10000,000) 4000,000 3500,000 3250,000 3000,000 1 3 4 As noted above, the company has a required rate of return of 12%. The following PV factors are provided: PV Factor Year (12%) 0.8929 1 2 0.7972 3 0.7118 4 0.6355
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