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A&B Enterprises is trying to select the best investment from two alternatives. Each alternative involves...

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Finance

A&B Enterprises is trying to select the best investment from two alternatives. Each alternative involves an initial outlay of $100,000. The cash flows follow:

Year

C

D

1

25,000

0

2

25,000

0

3

25,000

45,000

4

25,000

55,000

5

25,000

60,000
  1. Evaluate and rank each project alternative based on (a) payback period, (b) net present value (use a 10% discount rate), (c) profitability index, and (d) internal rate of return.
  2. For project C & D,
    1. Determine net present value of each project, based on zero discount rate.
    2. Determine net present value of each project, based on 15% discount rate.
    3. Explain your results
  1. Why is capital budgeting an important analysis tool?
  2. What was the simplest method for you to use and why?
  3. Outline 2 real world applications/scenarios where you would use a capital budgeting technique

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