Question
A company is considering two mutually exclusive projects, Project A and Project B. The initial outlay for each project is $200,000, and the cost of
A company is considering two mutually exclusive projects, Project A and Project B. The initial outlay for each project is $200,000, and the cost of capital for the company is 10%. The cash flows for each project are as follows:
Project A:
Year 1: $50,000
Year 2: $75,000
Year 3: $100,000
Year 4: $125,000
Project B:
Year 1: $70,000
Year 2: $60,000
Year 3: $50,000
Year 4: $40,000
Which project should the company choose? Calculate the net present value (NPV) and profitability index (PI) for each project to support your recommendation.
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Financial Management Theory and Practice
Authors: Eugene F. Brigham, Michael C. Ehrhardt
15th edition
130563229X, 978-1305632301, 1305632303, 978-0357685877, 978-1305886902, 1305886909, 978-1305632295
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