Luster Electronics Company is analyzing two capital projects, project A and project B. Each has an initial

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Luster Electronics Company is analyzing two capital projects, project A and project B. Each has an initial capital cost of $12,000, and the weighted average cost of capital for both projects is 12%. The projected annual cash flows are as follows:


1. For each project, calculate the following:

• Payback period

• Net present value

• Internal rate of return

• Profitability index (using the 12% discount rate)

2. Which project or projects should be accepted if the two are independent?

3. Which project should be accepted if the two are mutually exclusive (that is, you can choose only one)?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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