Time Value of Money and Basics of Capital BudgetingPearland Medical Center is considering two...

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Time Value of Money and Basics of Capital Budgeting

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

Calculate each project’s payback period, net present value, and internal rate of return. Explain which project is financially acceptable.
Avery, Flaherty, and Rhee XXXXXXXXXXnoted that when choosing a capital budgeting decision tool, academics recommend NPV as the primary approach followed by IRR. What are the advantages and disadvantages of NPV and IRR methods in regards to profitability analysis in evaluating investment decisions?
Why are firms using the payback period method as a primarily decision-making tool?

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

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Assessment and Grading: Your paper will be assessed based on the performance assessment rubric that is linked within the course. Review it before you begin working on the assignment.

Your submission should meet the guidelines on file format, in-text citations and references, scholarly sources, scholarly writing, and use of direct quotes noted under Module 1 Assignment Expectations.

I need 4 pages, APA, 4-5 in-text citations, 4-5 References

tae_636681416124032929_119832_1.docx

Reubens · Accepted Answer

Payback, NPV & IRR
		Pearl Medical Center
			Statement showing cumulative cash inflows and Pay-back period of projects
			Project A		Project B
		Years	Cash Inflow	Cumulative cash inflow	Cash Inflow	Cumulative Cash inflow
		1	62,500	62500	32,625	32,625
		2	30,000	92,500	32,625	65,250
		3	28,000	120,500	32,625	97,875
		4	10,000	130,500	32,625	130,500
		1	Project A	Pay-back Period  2 years +(100,000-92,500)/28,000
					  2years +(7,500/28,000)
					       2 years +	0.2678571429
					       2.27 years
			Project B	Pay-back Period  3 years +(100,000-97,875)/32,625
					      3 years +(2,125/32,625)
					3 years +	0.0651
					3.07 years
			Project A is viable as the investment can be taken back within the shortest period of 2.27 years
			Calculation of Net present value
				Project A		Project B
		Years	Discounting factor @12% p.a	Cash Inflow	Present values	Cash Inflow	Present values
		1	0.8929	62,500	55806.25	32,625	29130.86
		2	0.7972	30,000	23916.00	32,625	26008.65
		3	0.7118	28,000	19930.40	32,625	23222.48
		4	0.6355	10,000	6355.00	32,625	20733.19
			        Present Value		106007.65		99095.18
			Less: Capital Invested		100,000.00		100,000.00
			Net present value		6007.65		-904.

Time Value of Money and Basics of Capital Budgeting Pearland Medical Center is considering two proposed capital investment opportunities, Project A and Project B. Each project requires a net...

Time Value of Money and Basics of Capital Budgeting

SLP Assignment Expectations

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