Question 1. Share with us either your companies benchmarks for screening capital projects or research benchmarks for another organization. Also, how were these benchmarks established or approved?
Question 2. A company has $15,000 to invest. This company is deciding between two alternatives, details as follows:
Project A Project B
Investment Required $15,000 $15,000
Annual Cash Flows $4,000 $0
Single Cash Flow @ End of 10 yrs $0 $60,000
Life of Project 10 yrs 10 yrs
If this company uses a 16% discount rate, which investment would you recommend the company accept? (Base your decision on their NPV's and show your calculations).
Amount of 16% Present Value of
Project A Year Cash Flows Factor Cash Flows_____
Initial Investment Now (15,000) 1.000 (15,000)
Annual Cash Flow 1-10 4,000 4.833 19,332
Single Cash Flow 10 0 _______
Net Present Value 4,332
Amount of 16% Present Value of
Project B Year Cash Flows Factor Cash Flows_____
Initial Investment Now (15,000) 1.000 (15,000)
Annual Cash Flow 1-10 0 0
Single Cash Flow 10 60,000 0.227 13,620
Net Present Value (1,380)