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Fred Mercury is evaluating two investment opportunities Project Queen and Project King. Fred has a rate of return of 15%. The cash flows for each
- Fred Mercury is evaluating two investment opportunities Project Queen and Project King. Fred has a rate of return of 15%. The cash flows for each investment are presented in the table below:
Expected cash inflow | ||
Year | Project Queen | Project King |
0 | ($280,000) | ($320,000) |
1 | $22,000 | $170,000 |
2 | $48,000 | $110,000 |
3 | $55,000 | $140,000 |
4 | $395,000 | $50,000 |
- Which projects (if any) are acceptable if Fred uses NPV to make his capital budgeting decision? EXPLAIN
- Which project (if any) should Fred choose if he uses NPV to make his decision?
- Which projects (if any) are acceptable if Fred uses IRR to make his capital budgeting decision? EXPLAIN.
- Which project (if any) should Fred choose if he uses IRR to make his capital budgeting decision?
- In the case that your rankings above for IRR and NPV do not agree, which project (if any) should Fred choose and why?
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