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Project K requires an initial investment of $450,000, is expected to last for 7 years, and...

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Finance

Project K requires an initial investment of $450,000, isexpected to last for 7 years, and is expected to produce after-taxnet cash flows of $92,000 per year. Project L requires $3000initial investment and produces a net cash flow of $800 per year.The discount rate for both projects is 8%.

a) What is the NPV of each project?

b) What is the Profitability Index of each project?

c) Which one will you choose?

Answer & Explanation Solved by verified expert
4.4 Ratings (927 Votes)
Part A NPV of each Project Project K PV of Cashflows for 7years at 8 Annual cash flow x 11rn 92000 x 1187 92000 x 521 479320 NPV of Project K PV of Cashflows Initial    See Answer
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