A&B Enterprises is trying to select the best investment from among… A&B Enterprises is trying to select the best investment from among three alternatives. Each alternative involves an initial outlay of $100,000. The company’s cost of capital is 10%. The incremental after tax cash inflows for each project are as follows: find out the following things of the company as per the above information a) Payback i) Calculate the payback period (1 decimal) for each project . ii) Evaluate and rank each alternative (i.e. 1st, 2nd, 3rd) based on payback period. What are the 2 main drawbacks of the payback method? b) Net Present Value (NPV) i) Calculate the NPV for each project ii) Evaluate and rank each alternative (i.e. 1st, 2nd, 3rd) based on the net present value. Are there any projects you would not recommend? Why? c) Profitability Index (PI) i) Calculate the PI ( 3 decimals) for each project ii) Evaluate and rank each alternative (i.e. 1st, 2nd, 3rd) based on the PI. Why are the rankings for PI the same (or different) as NPV in this case? Business Accounting IBM 2010
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