Question
STU Corp is considering two projects, Project X3 and Project Y3. Project X3: Year Cash Flow ($) Year 0 -90,000 Year 1 30,000 Year 2
STU Corp is considering two projects, Project X3 and Project Y3.
Project X3:Year | Cash Flow ($) |
Year 0 | -90,000 |
Year 1 | 30,000 |
Year 2 | 40,000 |
Year 3 | 50,000 |
Year | Cash Flow ($) |
Year 0 | -110,000 |
Year 1 | 40,000 |
Year 2 | 45,000 |
Year 3 | 55,000 |
The discount rate for both projects is 7%.
Requirements: a) Calculate the payback period for each project. b) Determine which project should be selected if the company requires a payback period of 2 years. c) Calculate the profitability index for each project. d) Decide which project should be accepted based on the profitability index rule. e) Calculate the NPV for each project and recommend which project should be accepted based on NPV.
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