Go Electric is an EV (Electric vehicle) company in China that is considering investing in the brand- new 2-seater luxury racing car market with cash flow (A) or upgrading their 7-seater family car model to full EV with cash flow (B) as follows: Year Cash Flow (A) Cash Flow (B) 0 -$170,000 -$18,000 1 10,000 10,000 2 25,000 6,000 3 25,000 10,000 4 380,000 8,000 The company has an internal rate of return of 15 percent requirement, REQUIRED: [All calculations should be carried out in two decimals in percentages, i.e., four decimals.] (a) If you apply the payback criterion, which investment will you choose? Why? (2 marks) (b) If you apply the discounted payback criterion, which investment will you choose? Why? (2 marks) (c) If you apply the NPV criterion, which investment will you choose? Why? (2 marks) (d) If you apply the IRR criterion, which investment will you choose? Why? (2 marks) (e) Based on your answers in (a) through (d), which project will you finally choose? Why? (2 marks)
Go Electric is an EV (Electric vehicle) company in China that is considering investing in the brand- new 2-seater luxury racing car market with cash flow (A) or upgrading their 7-seater family car model to full EV with cash flow (B) as follows: Year Cash Flow (A) Cash Flow (B) 0 -$170,000 -$18,000 1 10,000 10,000 2 25,000 6,000 3 25,000 10,000 4 380,000 8,000 The company has an internal rate of return of 15 percent requirement, REQUIRED: [All calculations should be carried out in two decimals in percentages, i.e., four decimals.] (a) If you apply the payback criterion, which investment will you choose? Why? (2 marks) (b) If you apply the discounted payback criterion, which investment will you choose? Why? (2 marks) (c) If you apply the NPV criterion, which investment will you choose? Why? (2 marks) (d) If you apply the IRR criterion, which investment will you choose? Why? (2 marks) (e) Based on your answers in (a) through (d), which project will you finally choose? Why? (2 marks)
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
Related questions
Question
![Go Electric is an EV (Electric vehicle) company in China that is considering investing in the brand-
new 2-seater luxury racing car market with cash flow (A) or upgrading their 7-seater family car
model to full EV with cash flow (B) as follows:
Year
Cash Flow (A)
Cash Flow (B)
0
-$170,000
-$18,000
1
10,000
10,000
2
25,000
6,000
3
25,000
10,000
4
380,000
8,000
The company has an internal rate of return of 15 percent requirement,
REQUIRED:
[All calculations should be carried out in two decimals in percentages, i.e., four
decimals.]
(a) If you apply the payback criterion, which investment will you choose? Why? (2 marks)
(b) If you apply the discounted payback criterion, which investment will you choose? Why?
(2 marks)
(c) If you apply the NPV criterion, which investment will you choose? Why? (2 marks)
(d) If you apply the IRR criterion, which investment will you choose? Why? (2 marks)
(e) Based on your answers in (a) through (d), which project will you finally choose?
Why? (2 marks)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F73d6ccf0-88ed-479e-ad8b-6009b5d98f98%2Fc4845ea6-b77b-4dc7-8fcb-dfffbe3e237a%2Ffbrxq1_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Go Electric is an EV (Electric vehicle) company in China that is considering investing in the brand-
new 2-seater luxury racing car market with cash flow (A) or upgrading their 7-seater family car
model to full EV with cash flow (B) as follows:
Year
Cash Flow (A)
Cash Flow (B)
0
-$170,000
-$18,000
1
10,000
10,000
2
25,000
6,000
3
25,000
10,000
4
380,000
8,000
The company has an internal rate of return of 15 percent requirement,
REQUIRED:
[All calculations should be carried out in two decimals in percentages, i.e., four
decimals.]
(a) If you apply the payback criterion, which investment will you choose? Why? (2 marks)
(b) If you apply the discounted payback criterion, which investment will you choose? Why?
(2 marks)
(c) If you apply the NPV criterion, which investment will you choose? Why? (2 marks)
(d) If you apply the IRR criterion, which investment will you choose? Why? (2 marks)
(e) Based on your answers in (a) through (d), which project will you finally choose?
Why? (2 marks)
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