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Nicholson Roofing Materials, Inc., is considering two mutually exclusive projects, each with an initial investment of $150,000. The companys board of directors has set a
Nicholson Roofing Materials, Inc., is considering two mutually exclusive projects, each with an initial investment of $150,000. The companys board of directors has set a maximum 4-year payback requirement and has set its cost of capital at 9%. The cash inflows associated with the two projects are shown in the following table:
| Cash inflows (CFt)
|
|
Year | Project A ($)
| Project B ($) |
1 | 45,000 | 75,000 |
2 | 45,000 | 60,000 |
3 | 45,000 | 30,000 |
4 | 45,000 | 30,000 |
5 | 45,000 | 30,000 |
6 | 45,000 | 30,000 |
- Calculate the payback period for each project.
- Calculate the NPV of each project at 10%
- Calculate the NPV of each project at 9%.
- Derive the IRR of each project.
- Rank the projects by each of the techniques used. Make and justify a recommendation.
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