Question
Lambda Corporation is evaluating two projects, Projects J and T, with an initial investment of $140,000 each. The discount rate is 15 percent. The projected
Lambda Corporation is evaluating two projects, Projects J and T, with an initial investment of $140,000 each. The discount rate is 15 percent. The projected net cash flows are:
Expected Net Cash FlowsYear | Project J | Project T |
0 | ($140,000) | ($140,000) |
1 | 70,000 | 60,000 |
2 | 50,000 | 40,000 |
3 | 40,000 | 30,000 |
4 | 30,000 | 20,000 |
i) Calculate the payback period for each project.
ii) Compute the NPV and IRR for both projects.
iii) Decide which project to accept if they are independent.
iv) Determine which project should be selected if they are mutually exclusive.
v) Analyze the implications of a discount rate change to 12 percent on project selection.
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