Roof Materials Inc is considering two mutually exclusive projects, each with an initial investment of $ 150,000.
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Question:
Roof Materials Inc is considering two mutually exclusive projects, each with an initial investment of $ 150,000. The company's board of directors established a requirement for the payback period of 4 years and a cost of capital of 9%. The cash inflows associated with the two projects are shown in the following table (next slide)Calculate:
- The simple payback period for each project's investment.
- The discounted payback period for each project's investment.
- NPV of each project at a discount rate of 9%.
- IRR of each project
- Classify the projects according to each of the techniques used. Make a recommendation and justify it.
- If the discount rate is 12% does it affect the recommendation made in the previous paragraph? why?
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