Paramount Carpets Company is considering purchasing new equipment costing $700,000. The company's management has estimated that the equipment will generate cash flows as follows: Year Net Cash Flow 1 $200,000 2 200,000 3 250,000 4 250,000 5 150,000 Considering the residual value is zero, calculate the payback period. The following details are provided by Doppler Systems: Project A Project B Project C Project D Initial investment $420,000 $200,000 $550,000 $500,000 PV of cash inflows $570,000 $380,000 $800,000 $390,000 Payback period (years) 3.6 3.2 4.0 2.0 NPV of project $150,000 $180,000 $250,000 -$110,000 If Doppler can fund only ONE of the four projects, which one should they fund AND WHY? (hint; consider the profitability indices)
Paramount Carpets Company is considering purchasing new equipment costing $700,000. The company's management has estimated that the equipment will generate cash flows as follows: Year Net Cash Flow 1 $200,000 2 200,000 3 250,000 4 250,000 5 150,000 Considering the residual value is zero, calculate the payback period. The following details are provided by Doppler Systems: Project A Project B Project C Project D Initial investment $420,000 $200,000 $550,000 $500,000 PV of cash inflows $570,000 $380,000 $800,000 $390,000 Payback period (years) 3.6 3.2 4.0 2.0 NPV of project $150,000 $180,000 $250,000 -$110,000 If Doppler can fund only ONE of the four projects, which one should they fund AND WHY? (hint; consider the profitability indices)
Chapter11: Capital Budgeting And Risk
Section: Chapter Questions
Problem 9P
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- Paramount Carpets Company is considering purchasing new equipment costing $700,000. The company's management has estimated that the equipment will generate cash flows as follows:
Year Net Cash Flow
1 $200,000
2 200,000
3 250,000
4 250,000
5 150,000
Considering the residual value is zero, calculate the payback period.
- The following details are provided by Doppler Systems:
|
|
Project A |
Project B |
Project C |
Project D |
|
Initial investment |
$420,000 |
$200,000 |
$550,000 |
$500,000 |
|
PV of |
$570,000 |
$380,000 |
$800,000 |
$390,000 |
|
Payback period (years) |
3.6 |
3.2 |
4.0 |
2.0 |
|
|
$150,000 |
$180,000 |
$250,000 |
-$110,000 |
If Doppler can fund only ONE of the four projects, which one should they fund AND WHY? (hint; consider the profitability indices)
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