Question
Question: A U.K. company is deciding between two mutually exclusive projects with the following costs and expected net cash flows: Year Project 1 Project 2
Question:
A U.K. company is deciding between two mutually exclusive projects with the following costs and expected net cash flows:
Year Project 1 Project 2
0 8,000,000 8,000,000
1 5,340,000 5,740,000
2 3,835,000 3,835,000
3 5,590,000 1,595,000
The company uses a discount rate of 13% for all projects and accepts all projects with a payback period of less than 5 years.
Which project is acceptable based on NPV (expressed in ) and based on payback period? Which choice is aligned to the goal of maximising shareholders' wealth?
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Modern Portfolio Theory and Investment Analysis
Authors: Edwin Elton, Martin Gruber, Stephen Brown, William Goetzmann
9th edition
9781118805800, 1118469941, 1118805801, 978-1118469941
