Busi 620 Db Forum 6

Question 1

A firm is considering 2 capital investment projects. Project A involves an initial cost of $125,000. The discounted present value of all future cash flows is $145,000. Project B requires an initial expenditure of $85,000. The discounted present value of all future cash flows is $102,000.

* Calculate the net present value of each of the 2 projects. Which would be preferred according to the net present value criterion?

Project A |

NPV | = | PVNCF | - | C0 |

NPV | = | $ 145,000 | - | $ 125,000 |

NPV | = | $ 20,000 |   |   |

Project B |

NPV | = | PVNCF | - | C0 |

NPV | = | $ 102,000 | - | $ 85,000 |

NPV | = | $ 17,000 |   |   |

Project A should be chosen since it has the larger net present value than Project B.

* Calculate the profitability index of each of the 2 projects. Which would be preferred according to the profitability index criterion?

Project A |

PI | = | PVNCF |

| | C0 |

PI | = | $ 145,000 |

| | $ 125,000 |

PI | = | 1.16 |

| | |

Project B |

PI | = | PVNCF |

| | C0 |

PI | = | $ 102,000 |

| | $ 85,000 |

PI | = | 1.2 |

| | |

Project B should be chosen since it has a larger ratio than Project A.

Question 5

Do you think the interest on payday loans is too high or just right? Should Christians charge poor people interest on loans?

Payday loans interest rates are too high. They used to be higher until Congress capped interest rates to 36 percent for the annual percentage rate (Stegman, 2007, p. 174). For most people, getting a payday loan is cycle that they are not able to break free of. They will get a payday loan to pay off a payday loan from another company. The fees that were charged before 2007 were generally $15 to $30 for every $100 advanced. The implied interest rate would have been from 400 to 1000 percent (Stegman, 2007, p. 169-170).

According to Deuteronomy 23:19-20, a Christian can charge interest to a non-Christian but...