Question
A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows: 0 1
A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows:
| 0 | 1 | 2 | 3 | 4 | 5 |
| Project M | -$12,000 | $4,000 | $4,000 | $4,000 | $4,000 | $4,000 |
| Project N | -$36,000 | $11,200 | $11,200 | $11,200 | $11,200 | $11,200 |
Calculate payback for each project. Do not round intermediate calculations. Round your answers to two decimal places. Project M: years Project N: years
Calculate discounted payback for each project. Do not round intermediate calculations. Round your answers to two decimal places. Project M: years Project N: years
Assuming the projects are independent, which one(s) would you recommend?
If the projects are mutually exclusive, which would you recommend?
Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR?
|
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Financial Management For Decision Making
Authors: Harold Jr. Bierman, Seymour Smidt
1st Edition
1587982129, 9781587982125
