Problem:
Consider the following data on four mutually exclusive projects under consideration by the Thomas Company:
Year Project A Project B Project C Project D
0 -30,000 -60,000 -30,000 -60,000
1 10,000 18,000 15,000 5,000
2 10,000 18,000 12,000 11,000
3 10,000 18,000 10,000 20,000
4 10,000 18,000 5,000 30,000
5 10,000 18,000 -1,000 40,000
The cost of capital is 14%.
Calculate the following values for each project using the time value tables in the text:
· NPV
· IRR (round to the nearest whole percentage.)
· Profitability index
· Payback period
Question 1: What are the advantages and disadvantages of each method?
Question 2: Assume there is no capital rationing. If the projects are mutually exclusive, which will you choose? If the projects are complementary, which will you choose?
Question 3: Assume there IS capital rationing and the projects are mutually exclusive. You have $100,000 available. What projects will you select? Why?
Please show all your works. I need to understand how you did it step by step.