Question
ABC Industries is considering two investment opportunities: Project Alpha and Project Beta . Both projects require an initial investment of $500,000. The expected cash flows
ABC Industries is considering two investment opportunities: Project Alpha and Project Beta. Both projects require an initial investment of $500,000. The expected cash flows are as follows:
Year | Cash Flows (Alpha) | Cash Flows (Beta) |
0 | -$500,000 | -$500,000 |
1 | $150,000 | $200,000 |
2 | $200,000 | $150,000 |
3 | $250,000 | $100,000 |
4 | $300,000 | $50,000 |
a. Calculate the payback period for both projects. b. Determine which project should be chosen based on the Net Present Value (NPV) method, assuming a discount rate of 8%.
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Financial Management Principles and Applications
Authors: Sheridan Titman, Arthur Keown, John Martin
12th edition
133423824, 978-0133423822
