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Company A is considering two projects: Project M and Project N. Project M Cost of Capital: 9% Initial Investment: $120,000 Cash Inflow Year 1: $40,000
Company A is considering two projects: Project M and Project N.
- Project M
- Cost of Capital: 9%
- Initial Investment: $120,000
- Cash Inflow Year 1: $40,000
- Cash Inflow Year 2: $60,000
- Cash Inflow Year 3: $80,000
- Project N
- Cost of Capital: 11%
- Initial Investment: $160,000
- Cash Inflow Year 1: $60,000
- Cash Inflow Year 2: $70,000
- Cash Inflow Year 3: $90,000
Tasks:
- Calculate the payback period for each project.
- Calculate the net present value (NPV) for each project.
- Calculate the internal rate of return (IRR) for each project.
- Compare the profitability index for each project.
- Make a recommendation on which project to select and why.
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