I need a one paragraph

Business & Finance
Price: $15 USD

Question description

Instructions:  Write a 1 paragraph explain which Investment you will choose and explain why. Please provide references at the end

Scenario Information:
Assume that two gas stations are for sale with the following cash flows; CF1 is the Cash Flow in the first year, and CFSubmit 2 is the Cash Flow in the second year. This is the time line and data used in calculating the Payback Period, Net Present Value, and Internal Rate of Return. The calculations are done for you. Your task is to select the best project and explain your decision. The methods are presented and the decision each indicates is given below.

Investment Sales Price CF1 CF2
Gas Station A $50,000 $0 $100,000
Gas Station B $50,000 $50,000 $25,000

Three (3) Capital Budgeting Methods are presented:
  1. Payback Period: Gas Station A is paid back in 2 years; CF1 in year 1, and CF2 in year 2. Gas Station B is paid back in one (1) year. According to the payback period, when given the choice between two mutually exclusive projects, the investment paid back in the shortest time is selected.
  2. Net Present Value: Consider the gas station example above under the NPV method, and a discount rate of 10%:
    NPVgas station A = $100,000/(1+.10)2 - $50,000 = $32,644
    NPVgas station B = $50,000/(1+.10) + $25,000/(1+.10)2 - $50,000 = $16,115
  3. Internal Rate of Return: Assuming 10% is the cost of funds; the IRR for Station A is 41.421%.; for Station B, 36.602.

Tutor Answer

(Top Tutor) Daniel C.
School: UCLA
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