Question
Empire Manufacturing is considering two mutually exclusive projects with the following cash flows. Empires cost of capital is 10 percent. Year Project A Project B
Empire Manufacturing is considering two mutually exclusive projects with the following cash flows. Empires cost of capital is 10 percent.
Year Project A Project B
0 (485,000) (485,000)
1 0 155,000
2 0 152,000
3 0 131,000
4 0 110,000
5 0 108,000
6 1,000,000 98,500
a) Compute the NPV, IRR and Payback Period for each project. Assuming the projects were mutually exclusive:
b) If the payback criterion was four years, which project would be chosen?
c) If the hurdle rate was 13% which project would be chosen based on IRR?
d) Which project would be chosen if NPV was the decision method? Assuming the projects were independent:
e) If the payback criterion was four years, which project would be chosen?
f) If the hurdle rate was 13% which project would be chosen based on IRR?
g) Which project would be chosen based on NPV?
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