(Please show calculations and formulas that are used so I can better understand and work along. Thanks!)
GHI is considering two investment proposals. Estimated cash flows are below. Each will require an initial cash outlay, followed by several years of positive cash flows. Each project will terminate and all assets will be liquidated in year 6. GHI’s WACC is 9%.
Year |
Project 1 |
Project 2 |
Initial outlay |
$1,000,000 |
$500,000 |
1 |
$160,000 |
$120,000 |
2 |
$200,000 |
$120,000 |
3 |
$300,000 |
$120,000 |
4 |
$400,000 |
$120,000 |
5 |
$350,000 |
$120,000 |
6 included salvage |
$300,000 |
$150,000 |
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