Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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FB Company is considering investing in two construction projects, and he developed the following estimates of the cash flows. His required return is 10% and views these projects as equally risky.
Year Project 1 cash flow project 2 cash flow
0 -550000 -700000
1 150000 200000
2 200000 150000
3 150000 250000
4 150000 150000
5 100000 150000
Required:
a) Calculate the
b) Calculate the profitability index (PI) of each project, assess its acceptability, and indicate which project is best using PI.
c) If both the projects have recorded a positive NPV value and the projects are mutually exclusive, which projects would you recommend for FB Company to undertake? Why?
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