NPV and Other Investment Rules
Gardial Fisheries is considering two mutually exclusive investments (if one is selected the other is eliminated). The projects' expected net cash flows are as follows:
|
Expected Net Cash Flows |
| Time |
Project A |
Project B |
| 0 |
($375) |
($575) |
| 1 |
($300) |
$190 |
| 2 |
($200) |
$190 |
| 3 |
($100) |
$190 |
| 4 |
$600 |
$190 |
| 5 |
$600 |
$190 |
| 6 |
$926 |
$190 |
| 7 |
($200) |
$0 |
"a. If each project's discount rate is 12%, which project should be selected? If the discount rate is 18%, what project is the proper choice?"
b. What is each project's IRR?
c. What is the crossover rate, and what is its significance?
d. What is the regular payback period for these two projects?
e. At a rate of 12%, what is the discounted payback period for these two projects?
f. What is the profitability index for each project if the discount rate is 12%?