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Consider the projects below. Assuming these projects are mutually exclusive , the firm has no other investment opportunities except fairly priced financial securities, and WACC

Consider the projects below. Assuming these projects are mutually exclusive, the firm has no other investment opportunities except fairly priced financial securities, and WACC = 12%. Which, if either, project should it invest in and why?

0

1

2

3

Project 1:

Capital Spending

($1,050,000)

FCF

$500,000

$500,000

$500,000

NPV

IRR

20.2%

Project 2:

Capital Spending

($500,000)

FCF

$450,000

$250,000

$0

NPV

IRR

28.8%

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To determine which project to invest in we can use the Net Present Value NPV and Internal Rate of Return IRR criteria Both criteria are commonly used in capital budgeting decisions 1 NPV Criterion Pro... blur-text-image

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