question on capital budgeting techniques
TRANSCRIPT
-
Question on capital budgeting techniques
-
Numerical The firm for which you work must choose between the following two mutually exclusive projects - The appropriate discount rate for the projects is 10 percent
The firm chooses to undertake A. At a luncheon for the shareholders, the managers of a pension fund that owns a substantial amount of the firms stock asked you why the firm chose project A instead of project B when B is more profitable on the basis of PI.How would you justify your firms action? Are there any circumstances under which the pension fund managers argument could be correct?
*
Years012PINPVCash flows Project A-100010005000.32322.31Cash flows Project B-5005004000.57285.12
*