JB Hi-Fi management is considering the two following options of buying a new equipment for a...

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Finance

JB Hi-Fi management is considering the two following options ofbuying a new equipment for a new investment project with the sameinitial cost. Year:- 0 , 1, 2, 3, 4 Project A :-, -$78500, $43000,$29000, $23000, $21000, Project B:-, -$78500, $21000, $28000 ,$34000, $41000 A) which project the company should choose based onNPV Criterion if the required rate of return is 11%. B) Whichproject the company should choose based on P1 criterion if therequired rate of return is 11%. C) Which project the company shouldchoose if the payback criterion of minimum 3 years applies. D)After selecting the optimum project the company is thinking offinancing the project which costs totally 1 million dollars by acapital structure of 40% of debt and 60% of equity . The dividendpaid out to shareholders at the end of financial year is $1800000.Define the net profit of the company in the current year byapplying the residual theory. E) compute the dividend payoutratio.

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4.2 Ratings (811 Votes)

NPV Criteria ProjectA ProjectB Year Cashflows DF 11 PV Year Cashflows DF 11 PV 0 78500 1 78500 0 78500 1 78500 1 43000 0900901 3873874 1 21000 0900901 1891892 2 29000 0811622 2353705 2 28000 0811622 2272543 3 23000 0731191 168174 3 34000 0731191 2486051 4 21000 0658731 1383335 4 41000 0658731 See Answer

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