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Mercken Industries Mercken Industries is contemplating four projects: Project P, Project Q, Project R, and Project S. The capital costs and estimated after-tax net cash

Mercken Industries Mercken Industries is contemplating four projects: Project P, Project Q, Project R, and Project S. The capital costs and estimated after-tax net cash flows of each mutually exclusive project are listed below. Mercken's desired after-tax opportunity cost is 12 percent, and the company has a capital budget for the year of $450,000. Idle funds cannot be reinvested at greater than 12 percent.

Project P

Project Q

Project R

Project S

Initial cost

$200,000

$235,000

$190,000

$210,000

Annual Cash Flows

Year 1

$ 93,000

$ 90,000

$ 45,000

$ 40,000

Year 2

93,000

85,000

55,000

50,000

Year 3

93,000

75,000

65,000

60,000

Year 4

0

55,000

70,000

65,000

Year 5

0

50,000

75,000

75,000

Net present value $23,370 $29,827 $27,233 $(7,854)
Internal rate of return 18.7% 17.6% 17.2%

10.6%

Excess present value index 1.12 1.13 1.14 0.95

Refer to Mercken Industries. Which project(s) will the company choose?

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