Question
All techniquesDecision among mutually exclusive investmentsPound Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows
All
techniquesDecision
among mutually exclusive investmentsPound Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table.
Cash flows | Project A | Project B | Project C | ||||
Initial investment (CF) | $50,000 | $80,000 | $80,000 | ||||
Cash inflows (CF), t=1 to 5 | $15,000 | $27,000 | $28,500 |
a.Calculate the payback period for each project.
b.Calculate the net present value (NPV) of each project, assuming that the firm has a cost of capital equal to
14%.
c.Calculate the internal rate of return (IRR) for each project.
d.
Indicate
which project you would recommend.
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