Question 10

Scenario: Analyze the following cash flows for Projects R and S:

• Project R:
  • Initial Investment: -$130,000
  • Year 1: $30,000
  • Year 2: $35,000
  • Year 3: $40,000
  • Year 4: $45,000
  • Year 5: $50,000
  • Year 6: $55,000
• Project S:
  • Initial Investment: -$160,000
  • Year 1: $35,000
  • Year 2: $40,000
  • Year 3: $45,000
  • Year 4: $50,000
  • Year 5: $55,000
  • Year 6: $65,000

Requirements: a. Determine the NPV for each project with a required rate of return of 10 percent. b. Calculate the IRR for each project. c. Compute the traditional payback period for each project. d. Recommend which project(s) should be undertaken if they are independent. e. Recommend which project should be undertaken if they are mutually exclusive.

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Integrative Case 1

Your company is considering two potential projects, Project X and Project Y. The following are the projected cash flows (in thousands of dollars) for each project over the next four years. Your task is to evaluate these projects based on multiple financial metrics.

Projected Cash Flows:

Year	Project X	Project Y
0	($200)	($300)
1	$60	$100
2	$80	$120
3	$100	$150
4	$150	$180

Requirements:

1. Calculate the Payback Period for both projects.
2. Determine the Net Present Value (NPV) of each project assuming a discount rate of 8%.
3. Calculate the Internal Rate of Return (IRR) for both projects.
4. Identify which project has a higher NPV and which one has a higher IRR.
5. Based on NPV and IRR, decide which project should be accepted.