Question
Neil Corporation has three projects under consideration. The cash flows for each of them are shown in the following table: Project A Project B Project
Neil Corporation has three projects under consideration. The cash flows for each of them are shown in the following table:
| Project A | Project B | Project C | |
| Initial investment | $40,000 | $40,000 | $40,000 |
| Year(t) | Cash inflows | Cash inflows | Cash inflows |
| 1 | $16,000 | $4,000 | $28,000 |
| 2 | $16,000 | $10,000 | $22,000 |
| 3 | $16,000 | $16,000 | $16,000 |
| 4 | $16,000 | $22,000 | $10,000 |
| 5 | $16,000 | $28,000 | $4,000 |
The firm has a cost of capital of 15?%.
a. Calculate each project\'s payback period. Which project is preferred according to this method?
b. Calculate each project\'s net present value (NPV). Which project is preferred according to this method?
c. Comment on your findings in parts a and b, and recommend the best project. Explain your recommendation.
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Principles Of Managerial Finance
Authors: Lawrence J. Gitman, Chad J. Zutter
13th Edition
9780132738729, 136119468, 132738724, 978-0136119463
