Question
Period Annual Cash Flows Project A Annual Cash Flows Project B 0 (25,000) (25,000) 1 5,000 20,000 2 10,000 10,000 3 15,000 8,000 4 20,000
Period | Annual Cash Flows Project A | Annual Cash Flows Project B |
0 | (25,000) | (25,000) |
1 | 5,000 | 20,000 |
2 | 10,000 | 10,000 |
3 | 15,000 | 8,000 |
4 | 20,000 | 6,000 |
Big Company is evaluating two projects, Project A and Project B. Both projects are of equal risk. Big Company has a WACC of 10%. The expected free cash flows of the projects are as follows
A. Compute the Net Present Value of Project A
B. The Net Present Value of Project B is $11,554.88. If projects A and B are independent, considering only at the NPV method, which projects(s) should Big Company proceed with? Explain your answer.
C. The Net Present Value of Project B: is $11,554.88 A and B are mutually exclusive, considering only at the NPV method, which project(s) should Big Company proceed with? Explain your answer
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