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2 (20%) ABC company has the following two mutually exclusive projects. Year Project A Project B -10,000 -12,000 6,500 8,000 4,000 4,100 2,000 5,000 a)
2 (20%) ABC company has the following two mutually exclusive projects. Year Project A Project B -10,000 -12,000 6,500 8,000 4,000 4,100 2,000 5,000 a) Suppose that ABC company's CEO decide their payback period cutoff is two years. What are the payback period for the two projects (use linear interpolation method to calculate the time within a year)? Which project will the CEO choose according to the payback rule? (Hint: no need to discount the cash flow) b) Suppose that ABC company uses NPV rule to rank these two projects. Which project should be chosen if the appropriate discount rate is 14%
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