Question
A firm is considering two projects with the following cash flows. The required return for both projects is 15 percent. Year Project E Year Project
A firm is considering two projects with the following cash flows. The required return for both projects is 15 percent.
| Year | Project E | Year | Project F |
| 0 | -$870,000 | 0 | -$520,000 |
| 1 | 530,000 | 1 | 380,000 |
| 2 | 450,000 | 2 | 240,000 |
| 3 | 250,000 | 3 | 100,000 |
Required: a. Calculate the NPV & IRR for both projects. (8 marks) b. Calculate the payback periods (including the fraction of a year) for both projects. (3 marks) c. Calculate the profitability index of both projects. (3 marks) d. Using the in above calculations, which project or projects should the firm choose if the projects are: i) Independent. Explain (3 marks) ii) Mutually exclusive. Explain (3 marks)
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Financial Performance
Authors: Marc Bertoneche, Rory Knight
1st Edition
0750640111, 978-0750640114
