Question 1:

You are a financial analyst for the Hittle Company. The director of capital budgeting hasasked you to analyze two proposed capital investments, Projects X and Y. Each project hasa cost of $10,000, and the cost of capital for each is 12%. The projects expected net cashflows are as follows:

Expected Net Cash Flows Year Project X Project Y 0 $10,000 $10,000 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000 3,500

a. Calculate each projects payback period, net present value (NPV), and internal rate ofreturn (IRR) IRRx= 8%, 15%, 18%, IRRy= 10%, 15%, 17%.

b. Which project or projects should be accepted if they are independent?

c. Which project should be accepted if they are mutually exclusive?