Project #50875 - Module 5 SLP

Pearland Medical Center is considering two proposed capital investment opportunities, Project A and Project B. Each project requires a net investment of $100,000. The cost of capital for each project is 12 percent. The projects’ expected cash revenues are: 

Year

Project A

Project B

0

($100,000)

($100,000)

1

$62,500

$32,625

2

$30,000

$32,625

3

$28,000

$32,625

4

$10,000

$32,625

Task for this assignment

  1. Calculate each project’s payback period, net present value, and internal rate of return. Explain which project is financially acceptable.
  2. Avery, Flaherty, and Rhee (2011) noted that when choosing a capital budgeting decision tool, academics recommend NPV as the primary approach followed by IRR. The payback period method is also presented but is treated as a decision aid. 

If the payback period method is inferior relative to NPV, why are firms still using it as a primary decision tool? Based upon what you have read in this article and your other research, do you agree with the statement that payback period has little practical relevance? Explain your answer.

SLP Assignment Expectations 

Assignment Expectations, in order to earn full credit: 

Length: 3 - 4 pages, excluding title page and references. 

Subject Mathematics
Due By (Pacific Time) 12/18/2014 12:00 am
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