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Company XYZ has the possibility to undertake two mutually exclusive projects. Project A has a horizon of 5 years and Project B has a
Company XYZ has the possibility to undertake two mutually exclusive projects. Project A has a horizon of 5 years and Project B has a horizon of 4 years. The initial investment (CFO) and expected cash flows (CF1 to CF5) at the end of each year are presented in the following table. The opportunity cost of capital of the company is 8%. Project CFO CF1 CF2 CF3 CF4 CF5 A -10,000 4,000 2,500 1,500 4,500 1,500 B -10,000 1,500 3,000 3,600 6,300 What are the discounted payback periods of projects A and B, respectively? O a. 4.13 years for Project A; 2.87 years for Project B. b. 3.5 years for Project A; 3.86 years for Project B. O c. 2.76 years for Project A; 3.45 years for Project B. O d. 3.90 years for Project A; 3.69 years for Project B.
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