Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Al-Ali’s firm is considering two projects and the cash flows associated with them are shown in the following table. The firm has set its cost of capital at 11 %

 

Year

Project A

Project B

0

-  SR 200

- SR 200

1

80

100

2

80

100

3

80

100

4

80

 

 

1- What is the payback period (PBP) for each project?

 

Project A

Project B

Payback period (PBP)

 

 

 

2- Calculate the NPV for each project?

 

 

Project A

Project B

NPV

 

 

 

 

3- What is the IRR for each project  ? ( to help you in calculating the IRR for project A is located between 21% & 22 % and for project B is between  23% & 24).

 

 

Project A

Project B

IRR

 

 

 

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Follow-up Question

Compute the Profitability Index (PI)  for each project?

 

Project A

Project B

Profitability Index (PI) 

 

 

5- In light of your answers above, suppose that these two projects might be mutually exclusive or independent. According to these two assumptions, fill in the blanks in the table below with the suitable answer:

 

Points

Investment Criteria

If A and B are mutually exclusive, then I would select

If A and B are independent, then I would select

 

PBP

 

 

 

NPV

 

 

 

IRR

 

 

 

PI

 

 

Solution
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Follow-up Questions
Read through expert solutions to related follow-up questions below.
Follow-up Question

Compute the Profitability Index (PI)  for each project?

 

Project A

Project B

Profitability Index (PI) 

 

 

5- In light of your answers above, suppose that these two projects might be mutually exclusive or independent. According to these two assumptions, fill in the blanks in the table below with the suitable answer:

 

Points

Investment Criteria

If A and B are mutually exclusive, then I would select

If A and B are independent, then I would select

 

PBP

 

 

 

NPV

 

 

 

IRR

 

 

 

PI

 

 

Solution
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by Bartleby Expert
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