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A company has $350,000 to invest in either Project T or Project U. The cash flows are as follows: Year Project T Project U 1
A company has $350,000 to invest in either Project T or Project U. The cash flows are as follows:
Year | Project T | Project U |
1 | $100,000 | $40,000 |
2 | $100,000 | $60,000 |
3 | $100,000 | $130,000 |
4 | $100,000 | $170,000 |
5 | $100,000 | $90,000 |
The discount rate is 8%.
Required:
- For each project, calculate the:
- Simple payback period
- Discounted payback period
- Net present value
- Internal rate of return
- Prepare a comparative income statement for both projects over the five years.
- Advise the firm on which project to select based on the results of your calculations.
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