Paramount Carpets Company is considering purchasing new equipment costing $700,000. The company's management has estimated that the equipment will generate cash flows as follows: Year Net Cash Flow 1...



  1. Paramount Carpets Company is considering purchasing new equipment costing $700,000. The company's management has estimated that the equipment will generate cash flows as follows:



Year
Net Cash Flow


1                $200,000


2                  200,000


3                  250,000


4                  250,000


5                  150,000



Considering the residual value is zero,
calculate the payback period.




  1. The following details are provided by Doppler Systems:












































Project A




Project B




Project C




Project D



Initial investment



$420,000



$200,000



$550,000



$500,000



PV of cash inflows



$570,000



$380,000



$800,000



$390,000



Payback period (years)



3.6



3.2



4.0



2.0



NPV of project



$150,000



$180,000



$250,000



-$110,000





If Doppler can fund

only ONE

of the four projects, which
one
should they fund
AND
WHY?
(hint; consider the profitability indices)





Jun 09, 2022
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