FINANCE 500-The CFO at Rabbit Corporation has asked you to
Subject: Business / Finance
Question
The CFO at Rabbit Corporation has asked you to analyze two proposed capital investments, Projects A and B. Each project has a cost of $10,000, and the cost of capital is 12% for each. The projects’ expected net cash flows are as follows:
year 0
Project 1 (10,000)
Project 2 (10,000)
1
6,500
3,500
2
3,000
3,500
3
3,000
3,500
4
1,000
3,500
Calculate each project’s payback period.
Calculate each project’s net present value (NPV).
Calculate each project’s internal rate of return (IRR).
Calculate each project’s profitability index (PI).
Which project or projects should be accepted if they are independent?
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