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A firm with a 14% WACC is evaluating two projects for this years capital budget. After-tax cash flows, including depreciation, are as follows: Year 0
A firm with a 14% WACC is evaluating two projects for this years capital budget. After-tax cash flows, including depreciation, are as follows:
| Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
Project A | -$6,000 | $2,000 | $2,000 | $2,000 | $2,000 | $2,000 |
Project B | -$18,000 | $5,600 | $5,600 | $5,600 | $5,600 | $5,600 |
- A. Calculate NPV, IRR, MIRR, payback, and discounted payback for each project.
- B. Assuming the projects are independent, which one(s) would you recommend?
- C. If the projects are mutually exclusive, which would you recommend?
- D. Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR?
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