Question
The following cash flows have been given for mutually exclusive Projects Alpha and Beta: Year ProjectAlpha ProjectBeta 0 -175000 -82500 1 40000 30000 2 60000
The following cash flows have been given for mutually exclusive Projects Alpha and Beta:
Year | ProjectAlpha | ProjectBeta |
0 | -175000 | -82500 |
1 | 40000 | 30000 |
2 | 60000 | -10500 |
3 | 85000 | 40000 |
4 | 92000 | 75000 |
5 | 92000 | 92000 |
(a) Use the payback period month to identify which project is more attractive. The requirement is that projects have a payback period of 3 years or less.
(b) At 10% cost of capital, use NPV approach to identify which project should be accepted and why?
(c) Use IRR approach to identify which project to accept, if the cost of capital is 10%
(d) If the cost of capital is 10%, given the results of the 3 approaches, which method should apply to make a final decision and why?
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