1. Mobil is considering two mutually exclusive projects – Project A and Project B. Each requires an initial investment o
Posted: Thu Apr 28, 2022 1:42 pm
1. Mobil is considering two mutually exclusive projects – Project A and Project B. Each requires an initial investment of $910,000. Mobil, which has a 18% cost of capital, has estimated its Earnings after taxes as shown in the following table.
Year. Project A. Project B
1. 150,000. 450,000
2. 225,000. 350,000
3. 300.000. 250,000
4 . 400,000 100,000
5. 200,000. 150,000
6. 150,000. 150,000
7. 150,000. 125,000
a. Determine the Payback Period (PBP), Net Present Value (NPV) and Profitability Index (PI) of each project, assuming Mobil uses straight line method of depreciation, and the working life of each project is 7 years.
b. Rank and assess which project Mobil should invest in? Explain why.
Year. Project A. Project B
1. 150,000. 450,000
2. 225,000. 350,000
3. 300.000. 250,000
4 . 400,000 100,000
5. 200,000. 150,000
6. 150,000. 150,000
7. 150,000. 125,000
a. Determine the Payback Period (PBP), Net Present Value (NPV) and Profitability Index (PI) of each project, assuming Mobil uses straight line method of depreciation, and the working life of each project is 7 years.
b. Rank and assess which project Mobil should invest in? Explain why.