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Suppose you are working in the financial management team at Madison Square Garden and need to compare two capital projects to identify a better one.

Suppose you are working in the financial management team at Madison Square Garden and need to compare two capital projects to identify a better one.

Project 1 (upgrading seats) has an expected useful life of 10 years and anticipated annual cash flows of $90,000. The initial cost is $520,000.

Project 2 (replacing scoreboard) has an expected useful life of 7 years and anticipated annual cash flows of $80,000. The initial cost is $250,000.

Your organization will use bank loan with 10% annual interest rate.

Q1. Use methods of NPV and IRR and identify which of projects should be accepted

Q2. What would happen if annual interest rate is 13% and 15%?

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