Scribd
Upload
63 views2 pages

Prepare Freeform Answer For Assessment On Capital Bu..

Fitch Industries is choosing between two capital projects, Project M and Project N, that have equal risk. Project M has an initial cost of $28,500 and cash inflows of $10,000 for 4 years. Project N has an initial cost of $27,000 and cash inflows of $11,000, $10,000, $9,000 and $8,000 over 4 years. The student is asked to calculate the payback period and net present value of each project using Fitch's 14% cost of capital and determine which project to prioritize based on these metrics. The internal rate of return is also to be calculated to determine project priority.

Uploaded by

Clarisse Alimot
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
63 views2 pages

Prepare Freeform Answer For Assessment On Capital Bu..

Fitch Industries is choosing between two capital projects, Project M and Project N, that have equal risk. Project M has an initial cost of $28,500 and cash inflows of $10,000 for 4 years. Project N has an initial cost of $27,000 and cash inflows of $11,000, $10,000, $9,000 and $8,000 over 4 years. The student is asked to calculate the payback period and net present value of each project using Fitch's 14% cost of capital and determine which project to prioritize based on these metrics. The internal rate of return is also to be calculated to determine project priority.

Uploaded by

Clarisse Alimot
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

Prepare freeform answer for Assessment on Capital

Bu...
 Cancel

Instructions:  Solve for what is required in each independent case.


 
Fitch Industries is in the process of choosing the better of two equal-risk, mutually
exclusive capital expenditure projects, Project M and Project N.  The firm's cost of
capital is 14%.  
 
The relevant cash flows of each project are as follows:
 

Project M Project N
Cost of initial
28,500 27,000
investment
Operating cash
inflows
Year 1 10,000 11,000
Year 2 10,000 10,000
Year 3 10,000 9,000
Year 4 10,000 8,000

 
1.  Calculate each project's payback period. (15 pts)
2.  Using payback period, which project should be accepted?  Why? (15 pts)
3.  Calculate the net present value (NPV) for each project. (15 pts)
4.  Using NPV, are both projects acceptable?  Which project should be prioritized by
Fitch? (20 pts)
5.  Calculate the internal rate of return (IRR) of each project. (15 pts)
6.  Using IRR, are both projects acceptable?  Which project should be prioritized by
Fitch? (20 pts)

Your answer
Enter your freeform answer and then press one of the Save options.
You can add attachments such as Word documents, PDFs and pictures.
The maximum size of the answer plus attachments is 100 MB.
Answer

You might also like