Question
1.Projects X and Y have the following expected net cash flows: Project XProject Y YearCash FlowCash Flow 0-$500,000-$500,000 1250,000350,000 2250,000350,000 3250,000300,000 4200,000200,000 5150,000 Both the
1.Projects X and Y have the following expected net cash flows:
Project XProject Y
YearCash FlowCash Flow
0-$500,000-$500,000
1250,000350,000
2250,000350,000
3250,000300,000
4200,000200,000
5150,000
Both the projects are of the same company, Deccan Pharma. The most recently paid dividend was $2 and it is growing at 5% for the infinite period of time. Moreover, the stock is selling for $45.
Assume you are a finance manager of the company. Which project you should Choose based on NPV? Would your decision change if payback method was used? Or Discounted Pay back period?
Which method you think is the best to find out the solution and why? Why you are not choosing the other two methods?
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