Question
Can someone help provide the steps and solution to this problem. X-treme Vitamin Company is considering two investments, both of which cost $10,000. The cash
Can someone help provide the steps and solution to this problem.
X-treme Vitamin Company is considering two investments, both of which cost $10,000. The cash flows are as follows:
Year | Project A | Project B |
1................... | $12,000 | $10,000 |
2................... | 8,000 | 6,000 |
3................... | 6,000 | 16,000 |
a. Which of the two projects should be chosen based on the payback method?
b. Which of the two projects should be chosen based on the net present value method?
Assume a cost of capital of 10 percent.
c. Should a firm normally have more confidence in answer a or answer b.
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