NCF(A) NCF(B) NCF(C) Initial investment $600,000 $800,000 $470,000 Planning horizon 10 years 10 years 10 years Salvage values Annual receipts $70,000 $130,000 $65,000 $400,000 $600,000 $260,000 Annual disbursements $130,000 $270,000 $70,000

NCF(A) NCF(B) NCF(C) Initial investment $600,000 $800,000 $470,000 Planning horizon 10 years 10 years 10 years Salvage values Annual receipts $70,000 $130,000 $65,000 $400,000 $600,000 $260,000 Annual disbursements $130,000 $270,000 $70,000

Fundamentals of Financial Management (MindTap Course List)

15th Edition

ISBN:9781337395250

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 17P: EQUIVALENT ANNUAL ANNUITY A firm has two mutually exclusive investment projects to evaluate. The...

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Chingos and Daughters Construction is considering three investment proposals: A, B, and C. Proposals A and B are mutually exclusive, and Proposal C is contingent on proposal B. The cash flow data for the investments over a 10-year planning horizon are given below. The company has a budget limit of $1 million for investments of the type being considered currently. MARR = 15%. Determine which alternative should be selected using the external rate of return method.

NCF(A) NCF(B) NCF(C)
Initial investment
$600,000 $800,000 $470,000
Planning horizon
10 years 10 years 10 years
Salvage values
Annual receipts
$70,000 $130,000 $65,000
$400,000 $600,000 $260,000
Annual disbursements $130,000 $270,000 $70,000

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